Correlation Between Chevron Corp and Invesco DWA

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

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

Diversification Opportunities for Chevron Corp and Invesco DWA

-0.31

Correlation Coefficient

Chevron Corp  Invesco DWA

Very good diversification

The 3 months correlation between Chevron and Invesco is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and Invesco DWA SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA SmallCap and Chevron Corp 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 Chevron Corp 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 SmallCap has no effect on the direction of Chevron Corp i.e., Chevron Corp and Invesco DWA go up and down completely randomly.

Pair Corralation between Chevron Corp and Invesco DWA

Considering the 90-day investment horizon Chevron Corp is expected to under-perform the Invesco DWA. But the stock apears to be less risky and, when comparing its historical volatility, Chevron Corp is 1.06 times less risky than Invesco DWA. The stock trades about -0.2 of its potential returns per unit of risk. The Invesco DWA SmallCap is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  8,836  in Invesco DWA SmallCap on March 10, 2024 and sell it today you would lose (226.00) from holding Invesco DWA SmallCap or give up 2.56% of portfolio value over 90 days.

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

Chevron Corp  vs.  Invesco DWA SmallCap

Chevron Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Chevron Corp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Invesco DWA SmallCap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco DWA SmallCap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Invesco DWA is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Chevron Corp and Invesco DWA

The main advantage of trading using opposite Chevron Corp and Invesco DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron Corp 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 Chevron Corp and Invesco DWA SmallCap 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.