Correlation Between Invesco DWA and Vanguard
Can any of the company-specific risk be diversified away by investing in both Invesco DWA and Vanguard 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 Vanguard into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Invesco DWA SmallCap and Vanguard SP Small Cap, you can compare the effects of market volatilities on Invesco DWA and Vanguard 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 Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco DWA and Vanguard.
Diversification Opportunities for Invesco DWA and Vanguard
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Invesco and Vanguard is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA SmallCap and Vanguard SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP Small 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 SmallCap are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP Small has no effect on the direction of Invesco DWA i.e., Invesco DWA and Vanguard go up and down completely randomly.
Pair Corralation between Invesco DWA and Vanguard
Given the investment horizon of 90 days Invesco DWA is expected to generate 1.69 times less return on investment than Vanguard. In addition to that, Invesco DWA is 1.29 times more volatile than Vanguard SP Small Cap. It trades about 0.02 of its total potential returns per unit of risk. Vanguard SP Small Cap is currently generating about 0.05 per unit of volatility. If you would invest 10,669 in Vanguard SP Small Cap on November 5, 2024 and sell it today you would earn a total of 1,431 from holding Vanguard SP Small Cap or generate 13.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Invesco DWA SmallCap vs. Vanguard SP Small Cap
Performance |
| Timeline |
| Invesco DWA SmallCap |
| Vanguard SP Small |
Invesco DWA and Vanguard Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Invesco DWA and Vanguard
The main advantage of trading using opposite Invesco DWA and Vanguard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco DWA position performs unexpectedly, Vanguard 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 Vanguard will offset losses from the drop in Vanguard's long position.| Invesco DWA vs. Invesco DWA Momentum | Invesco DWA vs. Invesco DWA Developed | Invesco DWA vs. Invesco DWA Emerging | Invesco DWA vs. First Trust Small |
| Vanguard vs. Vanguard SP Small Cap | Vanguard vs. Vanguard SP Mid Cap | Vanguard vs. Vanguard Russell 2000 | Vanguard vs. Vanguard SP Small Cap |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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