Correlation Between Invesco California and IShares California

Can any of the company-specific risk be diversified away by investing in both Invesco California and IShares California 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 Invesco California and IShares California into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Invesco California AMT Free and iShares California Muni, you can compare the effects of market volatilities on Invesco California and IShares California 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 Invesco California with a short position of IShares California. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco California and IShares California.

Diversification Opportunities for Invesco California and IShares California

0.89

Correlation Coefficient

Invesco California  IShares California

Very poor diversification

The 3 months correlation between Invesco and IShares is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Invesco California AMT Free and iShares California Muni in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares California Muni and Invesco California 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 Invesco California AMT Free are associated (or correlated) with IShares California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares California Muni has no effect on the direction of Invesco California i.e., Invesco California and IShares California go up and down completely randomly.

Pair Corralation between Invesco California and IShares California

Considering the 90-day investment horizon Invesco California AMT Free is expected to under-perform the IShares California. In addition to that, Invesco California is 1.9 times more volatile than iShares California Muni. It trades about -0.1 of its total potential returns per unit of risk. iShares California Muni is currently generating about -0.12 per unit of volatility. If you would invest  5,706  in iShares California Muni on December 29, 2024 and sell it today you would lose (92.00) from holding iShares California Muni or give up 1.61% of portfolio value over 90 days.

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

Invesco California AMT Free  vs.  iShares California Muni

Invesco California AMT

Risk-Adjusted Performance

Very Weak

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

iShares California Muni

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares California Muni has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, IShares California is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Invesco California and IShares California

The main advantage of trading using opposite Invesco California and IShares California positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco California position performs unexpectedly, IShares California 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 IShares California will offset losses from the drop in IShares California's long position.

The idea behind Invesco California AMT Free and iShares California Muni 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.