Correlation Between Vanguard Health and Invesco DWA

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

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

Diversification Opportunities for Vanguard Health and Invesco DWA

-0.73

Correlation Coefficient

Vanguard Health  Invesco DWA

Pay attention - limited upside

The 3 months correlation between Vanguard and Invesco is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Health Care and Invesco DWA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Financial and Vanguard Health 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 Vanguard Health Care are associated (or correlated) with Invesco DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DWA Financial has no effect on the direction of Vanguard Health i.e., Vanguard Health and Invesco DWA go up and down completely randomly.

Pair Corralation between Vanguard Health and Invesco DWA

Considering the 90-day investment horizon Vanguard Health is expected to generate 3.27 times less return on investment than Invesco DWA. But when comparing it to its historical volatility, Vanguard Health Care is 1.7 times less risky than Invesco DWA. It trades about 0.07 of its potential returns per unit of risk. Invesco DWA Financial is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  4,217  in Invesco DWA Financial on August 26, 2024 and sell it today you would earn a total of  2,097  from holding Invesco DWA Financial or generate 49.73% return on investment over 90 days.

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

Vanguard Health Care  vs.  Invesco DWA Financial

Vanguard Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Health Care has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical indicators, Vanguard Health is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Invesco DWA Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Financial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical and fundamental indicators, Invesco DWA demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Health and Invesco DWA

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

The idea behind Vanguard Health Care and Invesco DWA Financial 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.