Correlation Between IShares Industrials and Invesco SP

Can any of the company-specific risk be diversified away by investing in both IShares Industrials 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 Industrials 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 Industrials ETF and Invesco SP 500, you can compare the effects of market volatilities on IShares Industrials 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 Industrials with a short position of Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Industrials and Invesco SP.

Diversification Opportunities for IShares Industrials and Invesco SP

0.97

Correlation Coefficient

IShares Industrials  Invesco SP

Almost no diversification

The 3 months correlation between IShares and Invesco is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares Industrials ETF and Invesco SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 500 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 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 500 has no effect on the direction of IShares Industrials i.e., IShares Industrials and Invesco SP go up and down completely randomly.

Pair Corralation between IShares Industrials and Invesco SP

Considering the 90-day investment horizon IShares Industrials is expected to generate 1.03 times less return on investment than Invesco SP. But when comparing it to its historical volatility, iShares Industrials ETF is 1.01 times less risky than Invesco SP. It trades about 0.15 of its potential returns per unit of risk. Invesco SP 500 is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  4,897  in Invesco SP 500 on September 13, 2024 and sell it today you would earn a total of  424.00  from holding Invesco SP 500 or generate 8.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

iShares Industrials ETF  vs.  Invesco SP 500

iShares Industrials ETF

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Industrials ETF are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, IShares Industrials may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Invesco SP 500

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 500 are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent technical and fundamental indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Industrials and Invesco SP

The main advantage of trading using opposite IShares Industrials and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Industrials 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 Industrials ETF and Invesco SP 500 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.