Correlation Between IShares Aerospace and Invesco DWA

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

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

Diversification Opportunities for IShares Aerospace and Invesco DWA

0.11

Correlation Coefficient

IShares Aerospace  Invesco DWA

Average diversification

The 3 months correlation between IShares and Invesco is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding iShares Aerospace Defense and Invesco DWA Industrials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Industrials and IShares Aerospace 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 Aerospace Defense 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 Industrials has no effect on the direction of IShares Aerospace i.e., IShares Aerospace and Invesco DWA go up and down completely randomly.

Pair Corralation between IShares Aerospace and Invesco DWA

Considering the 90-day investment horizon iShares Aerospace Defense is expected to generate 0.58 times more return on investment than Invesco DWA. However, iShares Aerospace Defense is 1.71 times less risky than Invesco DWA. It trades about 0.11 of its potential returns per unit of risk. Invesco DWA Industrials is currently generating about -0.07 per unit of risk. If you would invest  14,547  in iShares Aerospace Defense on December 28, 2024 and sell it today you would earn a total of  1,090  from holding iShares Aerospace Defense or generate 7.49% return on investment over 90 days.

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

iShares Aerospace Defense  vs.  Invesco DWA Industrials

iShares Aerospace Defense

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Aerospace Defense are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, IShares Aerospace may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Invesco DWA Industrials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco DWA Industrials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with IShares Aerospace and Invesco DWA

The main advantage of trading using opposite IShares Aerospace and Invesco DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Aerospace 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.

The idea behind iShares Aerospace Defense and Invesco DWA Industrials 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..