Correlation Between Financial Select and Invesco DWA
Can any of the company-specific risk be diversified away by investing in both Financial Select and Invesco DWA 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 Financial Select and Invesco DWA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Select Sector and Invesco DWA Financial, you can compare the effects of market volatilities on Financial Select and Invesco DWA 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 Financial Select with a short position of Invesco DWA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Select and Invesco DWA.
Diversification Opportunities for Financial Select and Invesco DWA
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Financial and Invesco is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and Invesco DWA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Financial and Financial Select 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 Financial Select Sector are associated (or correlated) with Invesco DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DWA Financial has no effect on the direction of Financial Select i.e., Financial Select and Invesco DWA go up and down completely randomly.
Pair Corralation between Financial Select and Invesco DWA
Considering the 90-day investment horizon Financial Select is expected to generate 1.5 times less return on investment than Invesco DWA. But when comparing it to its historical volatility, Financial Select Sector is 1.38 times less risky than Invesco DWA. It trades about 0.25 of its potential returns per unit of risk. Invesco DWA Financial is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 5,677 in Invesco DWA Financial on August 28, 2024 and sell it today you would earn a total of 704.00 from holding Invesco DWA Financial or generate 12.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Select Sector vs. Invesco DWA Financial
Performance |
| Timeline |
| Financial Select Sector |
| Invesco DWA Financial |
Financial Select and Invesco DWA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Select and Invesco DWA
The main advantage of trading using opposite Financial Select and Invesco DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Select position performs unexpectedly, Invesco DWA 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 DWA will offset losses from the drop in Invesco DWA's long position.| Financial Select vs. UBS AG London | Financial Select vs. UBS AG London | Financial Select vs. ETRACS Quarterly Pay | Financial Select vs. ETRACS 2xMonthly Pay |
| Invesco DWA vs. UBS AG London | Invesco DWA vs. UBS AG London | Invesco DWA vs. ETRACS Quarterly Pay | Invesco DWA vs. ETRACS 2xMonthly Pay |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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