Correlation Between Invesco DWA and Utilities Select

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

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

Diversification Opportunities for Invesco DWA and Utilities Select

0.99

Correlation Coefficient

Invesco DWA  Utilities Select

No risk reduction

The 3 months correlation between Invesco and Utilities is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Utilities and Utilities Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities Select Sector 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 Utilities are associated (or correlated) with Utilities Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Select Sector has no effect on the direction of Invesco DWA i.e., Invesco DWA and Utilities Select go up and down completely randomly.

Pair Corralation between Invesco DWA and Utilities Select

Considering the 90-day investment horizon Invesco DWA Utilities is expected to generate 0.95 times more return on investment than Utilities Select. However, Invesco DWA Utilities is 1.05 times less risky than Utilities Select. It trades about 0.01 of its potential returns per unit of risk. Utilities Select Sector is currently generating about 0.0 per unit of risk. If you would invest  3,370  in Invesco DWA Utilities on January 29, 2024 and sell it today you would lose (4.00) from holding Invesco DWA Utilities or give up 0.12% of portfolio value over 90 days.

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

Invesco DWA Utilities  vs.  Utilities Select Sector

Invesco DWA Utilities

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Utilities are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Invesco DWA may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Utilities Select Sector

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Utilities Select Sector are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent essential indicators, Utilities Select may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Invesco DWA and Utilities Select

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

The idea behind Invesco DWA Utilities and Utilities Select Sector 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 Stocks Directory module to find actively traded stocks across global markets.