Correlation Between Vanguard Energy and Invesco Dynamic

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

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

Diversification Opportunities for Vanguard Energy and Invesco Dynamic

0.86

Correlation Coefficient

Vanguard Energy  Invesco Dynamic

Very poor diversification

The 3 months correlation between Vanguard and Invesco is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Energy Index and Invesco Dynamic Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Dynamic Energy and Vanguard Energy 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 Vanguard Energy Index are associated (or correlated) with Invesco Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Dynamic Energy has no effect on the direction of Vanguard Energy i.e., Vanguard Energy and Invesco Dynamic go up and down completely randomly.

Pair Corralation between Vanguard Energy and Invesco Dynamic

Considering the 90-day investment horizon Vanguard Energy Index is expected to under-perform the Invesco Dynamic. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Energy Index is 1.3 times less risky than Invesco Dynamic. The etf trades about -0.02 of its potential returns per unit of risk. The Invesco Dynamic Energy is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,754  in Invesco Dynamic Energy on March 1, 2025 and sell it today you would lose (50.00) from holding Invesco Dynamic Energy or give up 1.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Vanguard Energy Index  vs.  Invesco Dynamic Energy

Vanguard Energy Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Energy Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Vanguard Energy is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Invesco Dynamic Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Dynamic Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Invesco Dynamic is not utilizing all of its potentials. The new stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vanguard Energy and Invesco Dynamic

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

The idea behind Vanguard Energy Index and Invesco Dynamic Energy 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.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.