Correlation Between Invesco SP and IShares Russell

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

By analyzing existing cross correlation between Invesco SP MidCap and iShares Russell Mid Cap, you can compare the effects of market volatilities on Invesco SP and IShares Russell 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 Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco SP and IShares Russell.

Diversification Opportunities for Invesco SP and IShares Russell

0.99

Correlation Coefficient

Invesco SP  IShares Russell

No risk reduction

The 3 months correlation between Invesco and IShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP MidCap and iShares Russell Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell Mid 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 MidCap are associated (or correlated) with IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell Mid has no effect on the direction of Invesco SP i.e., Invesco SP and IShares Russell go up and down completely randomly.

Pair Corralation between Invesco SP and IShares Russell

Given the investment horizon of 90 days Invesco SP MidCap is expected to generate 1.32 times more return on investment than IShares Russell. However, Invesco SP is 1.32 times more volatile than iShares Russell Mid Cap. It trades about 0.05 of its potential returns per unit of risk. iShares Russell Mid Cap is currently generating about 0.03 per unit of risk. If you would invest  12,161  in Invesco SP MidCap on September 23, 2024 and sell it today you would earn a total of  305.00  from holding Invesco SP MidCap or generate 2.51% return on investment over 90 days.

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

Invesco SP MidCap  vs.  iShares Russell Mid Cap

Invesco SP MidCap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP MidCap are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Invesco SP is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares Russell Mid

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell Mid Cap are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, IShares Russell is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Invesco SP and IShares Russell

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

The idea behind Invesco SP MidCap and iShares Russell Mid Cap 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.