Correlation Between Invesco DB and PSMM

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

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

Diversification Opportunities for Invesco DB and PSMM

0.35

Correlation Coefficient

Invesco DB  PSMM

Weak diversification

The 3 months correlation between Invesco and PSMM is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DB Agriculture and PSMM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PSMM and Invesco DB 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 DB Agriculture are associated (or correlated) with PSMM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PSMM has no effect on the direction of Invesco DB i.e., Invesco DB and PSMM go up and down completely randomly.

Pair Corralation between Invesco DB and PSMM

Considering the 90-day investment horizon Invesco DB Agriculture is expected to generate 1.51 times more return on investment than PSMM. However, Invesco DB is 1.51 times more volatile than PSMM. It trades about 0.06 of its potential returns per unit of risk. PSMM is currently generating about 0.03 per unit of risk. If you would invest  1,966  in Invesco DB Agriculture on March 14, 2024 and sell it today you would earn a total of  561.00  from holding Invesco DB Agriculture or generate 28.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	52.32%
Values	Daily Returns

Invesco DB Agriculture  vs.  PSMM

Invesco DB Agriculture

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DB Agriculture are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental drivers, Invesco DB may actually be approaching a critical reversion point that can send shares even higher in July 2024.

PSMM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PSMM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, PSMM 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 DB and PSMM

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

The idea behind Invesco DB Agriculture and PSMM 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.