Correlation Between IShares SPTSX and Invesco NASDAQ

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

By analyzing existing cross correlation between iShares SPTSX Capped and Invesco NASDAQ 100, you can compare the effects of market volatilities on IShares SPTSX and Invesco NASDAQ 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 SPTSX with a short position of Invesco NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SPTSX and Invesco NASDAQ.

Diversification Opportunities for IShares SPTSX and Invesco NASDAQ

0.75

Correlation Coefficient

IShares SPTSX  Invesco NASDAQ

Poor diversification

The 3 months correlation between IShares and Invesco is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding iShares SPTSX Capped and Invesco NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco NASDAQ 100 and IShares SPTSX 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 SPTSX Capped are associated (or correlated) with Invesco NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco NASDAQ 100 has no effect on the direction of IShares SPTSX i.e., IShares SPTSX and Invesco NASDAQ go up and down completely randomly.

Pair Corralation between IShares SPTSX and Invesco NASDAQ

Assuming the 90 days trading horizon iShares SPTSX Capped is expected to under-perform the Invesco NASDAQ. In addition to that, IShares SPTSX is 1.92 times more volatile than Invesco NASDAQ 100. It trades about -0.02 of its total potential returns per unit of risk. Invesco NASDAQ 100 is currently generating about -0.02 per unit of volatility. If you would invest  2,935  in Invesco NASDAQ 100 on December 4, 2024 and sell it today you would lose (31.00) from holding Invesco NASDAQ 100 or give up 1.06% of portfolio value over 90 days.

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

iShares SPTSX Capped  vs.  Invesco NASDAQ 100

iShares SPTSX Capped

Risk-Adjusted Performance

Weak

Over the last 90 days iShares SPTSX Capped has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares SPTSX is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Invesco NASDAQ 100

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco NASDAQ 100 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Invesco NASDAQ is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares SPTSX and Invesco NASDAQ

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

The idea behind iShares SPTSX Capped and Invesco NASDAQ 100 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.