Correlation Between IShares Edge and Invesco SP

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

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

Diversification Opportunities for IShares Edge and Invesco SP

0.91

Correlation Coefficient

IShares Edge  Invesco SP

Almost no diversification

The 3 months correlation between IShares and Invesco is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding iShares Edge MSCI and Invesco SP International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP International and IShares Edge 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 Edge MSCI are associated (or correlated) with Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP International has no effect on the direction of IShares Edge i.e., IShares Edge and Invesco SP go up and down completely randomly.

Pair Corralation between IShares Edge and Invesco SP

Given the investment horizon of 90 days iShares Edge MSCI is expected to generate 1.32 times more return on investment than Invesco SP. However, IShares Edge is 1.32 times more volatile than Invesco SP International. It trades about -0.05 of its potential returns per unit of risk. Invesco SP International is currently generating about -0.15 per unit of risk. If you would invest  2,890  in iShares Edge MSCI on September 17, 2024 and sell it today you would lose (78.00) from holding iShares Edge MSCI or give up 2.7% of portfolio value over 90 days.

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

iShares Edge MSCI  vs.  Invesco SP International

iShares Edge MSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Edge MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, IShares Edge is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Invesco SP International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco SP International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Invesco SP is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares Edge and Invesco SP

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

The idea behind iShares Edge MSCI and Invesco SP International 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.