Correlation Between IShares ESG and Invesco SP

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

Diversification Opportunities for IShares ESG and Invesco SP

-0.44

Correlation Coefficient

IShares ESG  Invesco SP

Very good diversification

The 3 months correlation between IShares and Invesco is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG USD and Invesco SP SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP SmallCap and IShares ESG 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 ESG USD 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 SmallCap has no effect on the direction of IShares ESG i.e., IShares ESG and Invesco SP go up and down completely randomly.

Pair Corralation between IShares ESG and Invesco SP

Given the investment horizon of 90 days IShares ESG is expected to generate 3.34 times less return on investment than Invesco SP. But when comparing it to its historical volatility, iShares ESG USD is 2.83 times less risky than Invesco SP. It trades about 0.05 of its potential returns per unit of risk. Invesco SP SmallCap is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,215  in Invesco SP SmallCap on September 16, 2024 and sell it today you would earn a total of  1,322  from holding Invesco SP SmallCap or generate 41.12% return on investment over 90 days.

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

iShares ESG USD  vs.  Invesco SP SmallCap

iShares ESG USD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares ESG USD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares ESG is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Invesco SP SmallCap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP SmallCap are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady technical indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares ESG and Invesco SP

The main advantage of trading using opposite IShares ESG and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares ESG 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 ESG USD and Invesco SP SmallCap 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.