Correlation Between ETF Series and Invesco DWA

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

By analyzing existing cross correlation between ETF Series Solutions and Invesco DWA Utilities, you can compare the effects of market volatilities on ETF Series and Invesco DWA 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 ETF Series with a short position of Invesco DWA. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETF Series and Invesco DWA.

Diversification Opportunities for ETF Series and Invesco DWA

0.76

Correlation Coefficient

ETF Series  Invesco DWA

Poor diversification

The 3 months correlation between ETF and Invesco is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding ETF Series Solutions and Invesco DWA Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Utilities and ETF Series 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 ETF Series Solutions are associated (or correlated) with Invesco DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DWA Utilities has no effect on the direction of ETF Series i.e., ETF Series and Invesco DWA go up and down completely randomly.

Pair Corralation between ETF Series and Invesco DWA

Given the investment horizon of 90 days ETF Series Solutions is expected to generate 1.19 times more return on investment than Invesco DWA. However, ETF Series is 1.19 times more volatile than Invesco DWA Utilities. It trades about 0.28 of its potential returns per unit of risk. Invesco DWA Utilities is currently generating about 0.04 per unit of risk. If you would invest  3,308  in ETF Series Solutions on September 13, 2024 and sell it today you would earn a total of  699.00  from holding ETF Series Solutions or generate 21.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

ETF Series Solutions  vs.  Invesco DWA Utilities

ETF Series Solutions

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ETF Series Solutions are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent technical and fundamental indicators, ETF Series displayed solid returns over the last few months and may actually be approaching a breakup point.

Invesco DWA Utilities

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Utilities are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Invesco DWA is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with ETF Series and Invesco DWA

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

The idea behind ETF Series Solutions and Invesco DWA Utilities 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.