Correlation Between Invesco Small and DOW

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

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

Diversification Opportunities for Invesco Small and DOW

0.0
  Correlation Coefficient
Invesco Small Cap
DOW

Pay attention - limited upside

The 3 months correlation between Invesco and DOW is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Small Cap and DOW in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on DOW and Invesco Small 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 Small Cap are associated (or correlated) with DOW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOW has no effect on the direction of Invesco Small i.e., Invesco Small and DOW go up and down completely randomly.
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Pair Corralation between Invesco Small and DOW

If you would invest  3,475,132  in DOW on July 18, 2021 and sell it today you would earn a total of  54,344  from holding DOW or generate 1.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy0.0%
ValuesDaily Returns

Invesco Small Cap  vs.  DOW

 Performance (%) 
      Timeline 

Invesco Small and DOW Volatility Contrast

 Predicted Return Density 
      Returns 

Invesco Small Cap

Pair trading matchups for Invesco Small

High Dividend vs. Invesco Small
Salesforce vs. Invesco Small
Realty Income vs. Invesco Small
Square vs. Invesco Small
Visa vs. Invesco Small
Walker Dunlop vs. Invesco Small
GM vs. Invesco Small
Citigroup vs. Invesco Small
Vmware vs. Invesco Small
Facebook vs. Invesco Small
Microsoft Corp vs. Invesco Small
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Invesco Small as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Invesco Small's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Invesco Small's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Invesco Small Cap.

DOW

Pair trading matchups for DOW

Upstart Holdings vs. DOW
Salesforce vs. DOW
Flowers Foods vs. DOW
GM vs. DOW
Vmware vs. DOW
Main Street vs. DOW
Citigroup vs. DOW
Visa vs. DOW
Microsoft Corp vs. DOW
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.

Pair Trading with Invesco Small and DOW

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

Invesco Small Cap

Pair trading matchups for Invesco Small

GM vs. Invesco Small
Salesforce vs. Invesco Small
Main Street vs. Invesco Small
Vmware vs. Invesco Small
Upstart Holdings vs. Invesco Small
Facebook vs. Invesco Small
High Dividend vs. Invesco Small
Visa vs. Invesco Small
Realty Income vs. Invesco Small
Walker Dunlop vs. Invesco Small
Microsoft Corp vs. Invesco Small
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Invesco Small as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Invesco Small's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Invesco Small's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Invesco Small Cap.
The idea behind Invesco Small Cap and DOW 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.

DOW

Pair trading matchups for DOW

Citigroup vs. DOW
Walker Dunlop vs. DOW
Sentinelone Inc vs. DOW
Upstart Holdings vs. DOW
Vmware vs. DOW
GM vs. DOW
Facebook vs. DOW
Realty Income vs. DOW
Microsoft Corp vs. DOW
High Dividend vs. DOW
Square vs. DOW
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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