Correlation Between IShares SP and Invesco DB

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

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

Diversification Opportunities for IShares SP and Invesco DB

0.9

Correlation Coefficient

IShares SP  Invesco DB

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 SP GSCI and Invesco DB Commodity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DB Commodity and IShares SP 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 SP GSCI are associated (or correlated) with Invesco DB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DB Commodity has no effect on the direction of IShares SP i.e., IShares SP and Invesco DB go up and down completely randomly.

Pair Corralation between IShares SP and Invesco DB

Considering the 90-day investment horizon IShares SP is expected to generate 1.25 times less return on investment than Invesco DB. In addition to that, IShares SP is 1.11 times more volatile than Invesco DB Commodity. It trades about 0.07 of its total potential returns per unit of risk. Invesco DB Commodity is currently generating about 0.1 per unit of volatility. If you would invest  2,127  in Invesco DB Commodity on December 28, 2024 and sell it today you would earn a total of  92.00  from holding Invesco DB Commodity or generate 4.33% return on investment over 90 days.

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

iShares SP GSCI  vs.  Invesco DB Commodity

iShares SP GSCI

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP GSCI are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IShares SP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Invesco DB Commodity

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DB Commodity are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, Invesco DB is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares SP and Invesco DB

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

The idea behind iShares SP GSCI and Invesco DB Commodity 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.