Correlation Between MicroSectors Solactive and Invesco DB

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

By analyzing existing cross correlation between MicroSectors Solactive FANG and Invesco DB Agriculture, you can compare the effects of market volatilities on MicroSectors Solactive and Invesco DB 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 MicroSectors Solactive with a short position of Invesco DB. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors Solactive and Invesco DB.

Diversification Opportunities for MicroSectors Solactive and Invesco DB

-0.41

Correlation Coefficient

MicroSectors Solactive  Invesco DB

Very good diversification

The 3 months correlation between MicroSectors and Invesco is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors Solactive FANG and Invesco DB Agriculture in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DB Agriculture and MicroSectors Solactive 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 MicroSectors Solactive FANG are associated (or correlated) with Invesco DB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DB Agriculture has no effect on the direction of MicroSectors Solactive i.e., MicroSectors Solactive and Invesco DB go up and down completely randomly.

Pair Corralation between MicroSectors Solactive and Invesco DB

Given the investment horizon of 90 days MicroSectors Solactive FANG is expected to generate 5.58 times more return on investment than Invesco DB. However, MicroSectors Solactive is 5.58 times more volatile than Invesco DB Agriculture. It trades about 0.07 of its potential returns per unit of risk. Invesco DB Agriculture is currently generating about 0.05 per unit of risk. If you would invest  4,020  in MicroSectors Solactive FANG on March 9, 2024 and sell it today you would earn a total of  9,577  from holding MicroSectors Solactive FANG or generate 238.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

MicroSectors Solactive FANG  vs.  Invesco DB Agriculture

MicroSectors Solactive

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors Solactive FANG are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting essential indicators, MicroSectors Solactive may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Invesco DB Agriculture

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DB Agriculture are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Invesco DB may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with MicroSectors Solactive and Invesco DB

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

The idea behind MicroSectors Solactive FANG and Invesco DB Agriculture 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.