Correlation Between IShares Basic and Invesco SP

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

Diversification Opportunities for IShares Basic and Invesco SP

0.04

Correlation Coefficient

IShares Basic  Invesco SP

Significant diversification

The 3 months correlation between IShares and Invesco is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding iShares Basic Materials 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 Basic 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 Basic Materials 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 Basic i.e., IShares Basic and Invesco SP go up and down completely randomly.

Pair Corralation between IShares Basic and Invesco SP

Considering the 90-day investment horizon IShares Basic is expected to generate 2.78 times less return on investment than Invesco SP. In addition to that, IShares Basic is 1.07 times more volatile than Invesco SP 500. It trades about 0.03 of its total potential returns per unit of risk. Invesco SP 500 is currently generating about 0.1 per unit of volatility. If you would invest  3,508  in Invesco SP 500 on September 13, 2024 and sell it today you would earn a total of  1,840  from holding Invesco SP 500 or generate 52.45% return on investment over 90 days.

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

iShares Basic Materials  vs.  Invesco SP 500

iShares Basic Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Basic Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares Basic is not utilizing all of its potentials. The new stock price disarray, may contribute to short-term losses for the investors.

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 Basic and Invesco SP

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