Correlation Between Invesco FTSE and Dimensional ETF

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Can any of the company-specific risk be diversified away by investing in both Invesco FTSE and Dimensional ETF 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 FTSE and Dimensional ETF into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Invesco FTSE RAFI and Dimensional ETF Trust, you can compare the effects of market volatilities on Invesco FTSE and Dimensional ETF 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 FTSE with a short position of Dimensional ETF. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco FTSE and Dimensional ETF.

Diversification Opportunities for Invesco FTSE and Dimensional ETF

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Invesco and Dimensional is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Invesco FTSE RAFI and Dimensional ETF Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional ETF Trust and Invesco FTSE 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 FTSE RAFI are associated (or correlated) with Dimensional ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional ETF Trust has no effect on the direction of Invesco FTSE i.e., Invesco FTSE and Dimensional ETF go up and down completely randomly.

Pair Corralation between Invesco FTSE and Dimensional ETF

Considering the 90-day investment horizon Invesco FTSE is expected to generate 3.09 times less return on investment than Dimensional ETF. But when comparing it to its historical volatility, Invesco FTSE RAFI is 1.06 times less risky than Dimensional ETF. It trades about 0.01 of its potential returns per unit of risk. Dimensional ETF Trust is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,254  in Dimensional ETF Trust on January 18, 2024 and sell it today you would earn a total of  370.00  from holding Dimensional ETF Trust or generate 16.42% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Invesco FTSE RAFI  vs.  Dimensional ETF Trust

 Performance 
       Timeline  
Invesco FTSE RAFI 

Risk-Adjusted Performance

3 of 100

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

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional ETF Trust are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Dimensional ETF is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Invesco FTSE and Dimensional ETF Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Invesco FTSE and Dimensional ETF

The main advantage of trading using opposite Invesco FTSE and Dimensional ETF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco FTSE position performs unexpectedly, Dimensional ETF 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 Dimensional ETF will offset losses from the drop in Dimensional ETF's long position.
The idea behind Invesco FTSE RAFI and Dimensional ETF Trust 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.

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