Correlation Between Invesco DWA and Financial Select
Can any of the company-specific risk be diversified away by investing in both Invesco DWA and Financial 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 Financial Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Invesco DWA Financial and Financial Select Sector, you can compare the effects of market volatilities on Invesco DWA and Financial 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 Financial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco DWA and Financial Select.
Diversification Opportunities for Invesco DWA and Financial Select
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Invesco and Financial is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Financial and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial 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 Financial are associated (or correlated) with Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of Invesco DWA i.e., Invesco DWA and Financial Select go up and down completely randomly.
Pair Corralation between Invesco DWA and Financial Select
Considering the 90-day investment horizon Invesco DWA is expected to generate 1.29 times less return on investment than Financial Select. In addition to that, Invesco DWA is 1.24 times more volatile than Financial Select Sector. It trades about 0.06 of its total potential returns per unit of risk. Financial Select Sector is currently generating about 0.1 per unit of volatility. If you would invest 3,256 in Financial Select Sector on January 19, 2024 and sell it today you would earn a total of 713.00 from holding Financial Select Sector or generate 21.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.6% |
| Values | Daily Returns |
Invesco DWA Financial vs. Financial Select Sector
Performance |
| Timeline |
| Invesco DWA Financial |
| Financial Select Sector |
Invesco DWA and Financial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Invesco DWA and Financial Select
The main advantage of trading using opposite Invesco DWA and Financial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco DWA position performs unexpectedly, Financial 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 Financial Select will offset losses from the drop in Financial Select's long position.| Invesco DWA vs. Energy Select Sector | Invesco DWA vs. Technology Select Sector | Invesco DWA vs. Health Care Select | Invesco DWA vs. Industrial Select Sector |
| Financial Select vs. Energy Select Sector | Financial Select vs. Technology Select Sector | Financial Select vs. Health Care Select | Financial Select vs. Industrial Select Sector |
Check out your portfolio center.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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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