Correlation Between Invesco DWA and Vanguard

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

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

Diversification Opportunities for Invesco DWA and Vanguard

0.87

Correlation Coefficient

Invesco DWA  Vanguard

Very poor diversification

The 3 months correlation between Invesco and Vanguard is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA SmallCap and Vanguard SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP Small 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 SmallCap are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP Small has no effect on the direction of Invesco DWA i.e., Invesco DWA and Vanguard go up and down completely randomly.

Pair Corralation between Invesco DWA and Vanguard

Given the investment horizon of 90 days Invesco DWA SmallCap is expected to under-perform the Vanguard. In addition to that, Invesco DWA is 1.14 times more volatile than Vanguard SP Small Cap. It trades about -0.05 of its total potential returns per unit of risk. Vanguard SP Small Cap is currently generating about 0.0 per unit of volatility. If you would invest  8,527  in Vanguard SP Small Cap on February 5, 2024 and sell it today you would lose (26.00) from holding Vanguard SP Small Cap or give up 0.3% of portfolio value over 90 days.

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

Invesco DWA SmallCap  vs.  Vanguard SP Small Cap

Invesco DWA SmallCap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA SmallCap are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Vanguard SP Small

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP Small Cap are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Vanguard is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Invesco DWA and Vanguard

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

The idea behind Invesco DWA SmallCap and Vanguard SP Small Cap 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.