Correlation Between Invesco DWA and Health Care

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

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

Diversification Opportunities for Invesco DWA and Health Care

-0.49

Correlation Coefficient

Invesco DWA  Health Care

Very good diversification

The 3 months correlation between Invesco and Health is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Industrials and Health Care Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Select 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 Industrials are associated (or correlated) with Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Select has no effect on the direction of Invesco DWA i.e., Invesco DWA and Health Care go up and down completely randomly.

Pair Corralation between Invesco DWA and Health Care

Considering the 90-day investment horizon Invesco DWA Industrials is expected to generate 1.99 times more return on investment than Health Care. However, Invesco DWA is 1.99 times more volatile than Health Care Select. It trades about 0.04 of its potential returns per unit of risk. Health Care Select is currently generating about -0.22 per unit of risk. If you would invest  15,205  in Invesco DWA Industrials on September 25, 2024 and sell it today you would earn a total of  528.00  from holding Invesco DWA Industrials or generate 3.47% return on investment over 90 days.

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

Invesco DWA Industrials  vs.  Health Care Select

Invesco DWA Industrials

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Industrials are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Invesco DWA is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Health Care Select

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Health Care Select has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's essential indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with Invesco DWA and Health Care

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

The idea behind Invesco DWA Industrials and Health Care Select 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.