Correlation Between Invesco DWA and Virtus LifeSci

Can any of the company-specific risk be diversified away by investing in both Invesco DWA and Virtus LifeSci at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Invesco DWA and Virtus LifeSci into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Invesco DWA Industrials and Virtus LifeSci Biotech, you can compare the effects of market volatilities on Invesco DWA and Virtus LifeSci and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Invesco DWA with a short position of Virtus LifeSci. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco DWA and Virtus LifeSci.

Diversification Opportunities for Invesco DWA and Virtus LifeSci

0.49

Correlation Coefficient

Invesco DWA  Virtus LifeSci

Very weak diversification

The 3 months correlation between Invesco and Virtus is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Industrials and Virtus LifeSci Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virtus LifeSci Biotech and Invesco DWA is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Invesco DWA Industrials are associated (or correlated) with Virtus LifeSci. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virtus LifeSci Biotech has no effect on the direction of Invesco DWA i.e., Invesco DWA and Virtus LifeSci go up and down completely randomly.

Pair Corralation between Invesco DWA and Virtus LifeSci

Considering the 90-day investment horizon Invesco DWA Industrials is expected to under-perform the Virtus LifeSci. But the etf apears to be less risky and, when comparing its historical volatility, Invesco DWA Industrials is 1.05 times less risky than Virtus LifeSci. The etf trades about -0.45 of its potential returns per unit of risk. The Virtus LifeSci Biotech is currently generating about -0.24 of returns per unit of risk over similar time horizon. If you would invest  6,449  in Virtus LifeSci Biotech on September 25, 2024 and sell it today you would lose (423.00) from holding Virtus LifeSci Biotech or give up 6.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Invesco DWA Industrials  vs.  Virtus LifeSci Biotech

Invesco DWA Industrials

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Industrials are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Invesco DWA is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Virtus LifeSci Biotech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Virtus LifeSci Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Virtus LifeSci is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Invesco DWA and Virtus LifeSci

The main advantage of trading using opposite Invesco DWA and Virtus LifeSci positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco DWA position performs unexpectedly, Virtus LifeSci can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Virtus LifeSci will offset losses from the drop in Virtus LifeSci's long position.

The idea behind Invesco DWA Industrials and Virtus LifeSci Biotech pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.