Correlation Between IShares California and Invesco National

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

By analyzing existing cross correlation between iShares California Muni and Invesco National AMT Free, you can compare the effects of market volatilities on IShares California and Invesco National 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 IShares California with a short position of Invesco National. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares California and Invesco National.

Diversification Opportunities for IShares California and Invesco National

0.9

Correlation Coefficient

IShares California  Invesco National

Almost no diversification

The 3 months correlation between IShares and Invesco is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares California Muni and Invesco National AMT Free in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco National AMT and IShares California 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 iShares California Muni are associated (or correlated) with Invesco National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco National AMT has no effect on the direction of IShares California i.e., IShares California and Invesco National go up and down completely randomly.

Pair Corralation between IShares California and Invesco National

Considering the 90-day investment horizon iShares California Muni is expected to generate 0.77 times more return on investment than Invesco National. However, iShares California Muni is 1.29 times less risky than Invesco National. It trades about -0.22 of its potential returns per unit of risk. Invesco National AMT Free is currently generating about -0.37 per unit of risk. If you would invest  5,795  in iShares California Muni on October 7, 2024 and sell it today you would lose (70.00) from holding iShares California Muni or give up 1.21% of portfolio value over 90 days.

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

iShares California Muni  vs.  Invesco National AMT Free

iShares California Muni

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares California Muni has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, IShares California is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Invesco National AMT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco National AMT Free has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Invesco National is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares California and Invesco National

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

The idea behind iShares California Muni and Invesco National AMT Free 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.