Correlation Between Invesco SP and IShares Basic

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

By analyzing existing cross correlation between Invesco SP 500 and iShares Basic Materials, you can compare the effects of market volatilities on Invesco SP and IShares Basic 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 SP with a short position of IShares Basic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco SP and IShares Basic.

Diversification Opportunities for Invesco SP and IShares Basic

0.05

Correlation Coefficient

Invesco SP  IShares Basic

Significant diversification

The 3 months correlation between Invesco and IShares is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP 500 and iShares Basic Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Basic Materials and Invesco SP 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 SP 500 are associated (or correlated) with IShares Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Basic Materials has no effect on the direction of Invesco SP i.e., Invesco SP and IShares Basic go up and down completely randomly.

Pair Corralation between Invesco SP and IShares Basic

Considering the 90-day investment horizon Invesco SP 500 is expected to generate 0.96 times more return on investment than IShares Basic. However, Invesco SP 500 is 1.05 times less risky than IShares Basic. It trades about 0.23 of its potential returns per unit of risk. iShares Basic Materials is currently generating about -0.02 per unit of risk. If you would invest  4,973  in Invesco SP 500 on September 13, 2024 and sell it today you would earn a total of  609.00  from holding Invesco SP 500 or generate 12.25% return on investment over 90 days.

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

Invesco SP 500  vs.  iShares Basic Materials

Invesco SP 500

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 500 are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.

Pair Trading with Invesco SP and IShares Basic

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

The idea behind Invesco SP 500 and iShares Basic Materials 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.