Correlation Between IShares Transportation and Invesco Aerospace

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

Diversification Opportunities for IShares Transportation and Invesco Aerospace

0.57

Correlation Coefficient

IShares Transportation  Invesco Aerospace

Very weak diversification

The 3 months correlation between IShares and Invesco is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding iShares Transportation Average 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 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 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 Transportation i.e., IShares Transportation and Invesco Aerospace go up and down completely randomly.

Pair Corralation between IShares Transportation and Invesco Aerospace

Considering the 90-day investment horizon iShares Transportation Average is expected to generate 1.04 times more return on investment than Invesco Aerospace. However, IShares Transportation is 1.04 times more volatile than Invesco Aerospace Defense. It trades about 0.0 of its potential returns per unit of risk. Invesco Aerospace Defense is currently generating about -0.01 per unit of risk. If you would invest  7,003  in iShares Transportation Average on November 27, 2024 and sell it today you would lose (54.00) from holding iShares Transportation Average or give up 0.77% of portfolio value over 90 days.

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

iShares Transportation Average  vs.  Invesco Aerospace Defense

iShares Transportation

Risk-Adjusted Performance

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 latest weak performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Invesco Aerospace Defense

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Aerospace Defense has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Invesco Aerospace is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Transportation and Invesco Aerospace

The main advantage of trading using opposite IShares Transportation and Invesco Aerospace positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Transportation 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 Transportation Average 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.