Correlation Between IShares Transportation and Invesco DWA

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

Diversification Opportunities for IShares Transportation and Invesco DWA

0.83

Correlation Coefficient

IShares Transportation  Invesco DWA

Very poor diversification

The 3 months correlation between IShares and Invesco is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding iShares Transportation Average and Invesco DWA Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Consumer and IShares Transportation 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 Transportation Average 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 Consumer has no effect on the direction of IShares Transportation i.e., IShares Transportation and Invesco DWA go up and down completely randomly.

Pair Corralation between IShares Transportation and Invesco DWA

Considering the 90-day investment horizon IShares Transportation is expected to generate 3.12 times less return on investment than Invesco DWA. But when comparing it to its historical volatility, iShares Transportation Average is 1.19 times less risky than Invesco DWA. It trades about 0.04 of its potential returns per unit of risk. Invesco DWA Consumer is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7,417  in Invesco DWA Consumer on September 28, 2024 and sell it today you would earn a total of  2,746  from holding Invesco DWA Consumer or generate 37.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.63%
Values	Daily Returns

iShares Transportation Average  vs.  Invesco DWA Consumer

iShares Transportation

Risk-Adjusted Performance

0 of 100

Very Weak

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

Invesco DWA Consumer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco DWA Consumer has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Invesco DWA is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Transportation and Invesco DWA

The main advantage of trading using opposite IShares Transportation and Invesco DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Transportation 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 Transportation Average and Invesco DWA Consumer 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.