Correlation Between IShares Industrials and Invesco Aerospace

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

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

Diversification Opportunities for IShares Industrials and Invesco Aerospace

0.96

Correlation Coefficient

IShares Industrials  Invesco Aerospace

Almost no diversification

The 3 months correlation between IShares and Invesco is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares Industrials ETF and Invesco Aerospace Defense in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Aerospace Defense and IShares Industrials 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 Industrials ETF are associated (or correlated) with Invesco Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Aerospace Defense has no effect on the direction of IShares Industrials i.e., IShares Industrials and Invesco Aerospace go up and down completely randomly.

Pair Corralation between IShares Industrials and Invesco Aerospace

Considering the 90-day investment horizon iShares Industrials ETF is expected to generate 0.81 times more return on investment than Invesco Aerospace. However, iShares Industrials ETF is 1.23 times less risky than Invesco Aerospace. It trades about 0.23 of its potential returns per unit of risk. Invesco Aerospace Defense is currently generating about 0.15 per unit of risk. If you would invest  12,732  in iShares Industrials ETF on September 1, 2024 and sell it today you would earn a total of  1,661  from holding iShares Industrials ETF or generate 13.05% return on investment over 90 days.

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

iShares Industrials ETF  vs.  Invesco Aerospace Defense

iShares Industrials ETF

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Industrials ETF are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, IShares Industrials may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Invesco Aerospace Defense

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Aerospace Defense are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, Invesco Aerospace may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with IShares Industrials and Invesco Aerospace

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

The idea behind iShares Industrials ETF and Invesco Aerospace Defense 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.