Correlation Between Invesco Dynamic and IShares Consumer

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

By analyzing existing cross correlation between Invesco Dynamic Leisure and iShares Consumer Discretionary, you can compare the effects of market volatilities on Invesco Dynamic and IShares Consumer 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 Dynamic with a short position of IShares Consumer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco Dynamic and IShares Consumer.

Diversification Opportunities for Invesco Dynamic and IShares Consumer

0.58

Correlation Coefficient

Invesco Dynamic  IShares Consumer

Very weak diversification

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

Pair Corralation between Invesco Dynamic and IShares Consumer

Considering the 90-day investment horizon Invesco Dynamic is expected to generate 1.27 times less return on investment than IShares Consumer. But when comparing it to its historical volatility, Invesco Dynamic Leisure is 1.02 times less risky than IShares Consumer. It trades about 0.1 of its potential returns per unit of risk. iShares Consumer Discretionary is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  7,798  in iShares Consumer Discretionary on February 14, 2024 and sell it today you would earn a total of  186.00  from holding iShares Consumer Discretionary or generate 2.39% return on investment over 90 days.

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

Invesco Dynamic Leisure  vs.  iShares Consumer Discretionary

Invesco Dynamic Leisure

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Dynamic Leisure are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady technical and fundamental indicators, Invesco Dynamic is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

iShares Consumer Dis

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Consumer Discretionary are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, IShares Consumer is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Invesco Dynamic and IShares Consumer

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

The idea behind Invesco Dynamic Leisure and iShares Consumer Discretionary 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.