Correlation Between Invesco DWA and NATO

Can any of the company-specific risk be diversified away by investing in both Invesco DWA and NATO 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 NATO into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Invesco DWA Basic and NATO, you can compare the effects of market volatilities on Invesco DWA and NATO 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 NATO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco DWA and NATO.

Diversification Opportunities for Invesco DWA and NATO

0.58

Correlation Coefficient

Invesco DWA  NATO

Very weak diversification

The 3 months correlation between Invesco and NATO is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Basic and NATO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NATO 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 Basic are associated (or correlated) with NATO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NATO has no effect on the direction of Invesco DWA i.e., Invesco DWA and NATO go up and down completely randomly.

Pair Corralation between Invesco DWA and NATO

Considering the 90-day investment horizon Invesco DWA Basic is expected to under-perform the NATO. In addition to that, Invesco DWA is 1.08 times more volatile than NATO. It trades about -0.5 of its total potential returns per unit of risk. NATO is currently generating about -0.15 per unit of volatility. If you would invest  2,647  in NATO on September 23, 2024 and sell it today you would lose (84.00) from holding NATO or give up 3.17% of portfolio value over 90 days.

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

Invesco DWA Basic  vs.  NATO

Invesco DWA Basic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco DWA Basic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Invesco DWA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

NATO

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NATO are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, NATO is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Invesco DWA and NATO

The main advantage of trading using opposite Invesco DWA and NATO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco DWA position performs unexpectedly, NATO 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 NATO will offset losses from the drop in NATO's long position.

The idea behind Invesco DWA Basic and NATO 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.