Correlation Between IShares Transportation and Invesco SP

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

Diversification Opportunities for IShares Transportation and Invesco SP

0.92

Correlation Coefficient

IShares Transportation  Invesco SP

Almost no diversification

The 3 months correlation between IShares and Invesco is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding iShares Transportation Average 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 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 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 Transportation i.e., IShares Transportation and Invesco SP go up and down completely randomly.

Pair Corralation between IShares Transportation and Invesco SP

Considering the 90-day investment horizon IShares Transportation is expected to generate 1.37 times less return on investment than Invesco SP. In addition to that, IShares Transportation is 1.26 times more volatile than Invesco SP 500. It trades about 0.05 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	Very Strong
Accuracy	100.0%
Values	Daily Returns

iShares Transportation Average  vs.  Invesco SP 500

iShares Transportation

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Transportation Average are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, IShares Transportation 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 Transportation and Invesco SP

The main advantage of trading using opposite IShares Transportation and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Transportation 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 Transportation Average 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.