Correlation Between IShares SP and Invesco Optimum

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

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

Diversification Opportunities for IShares SP and Invesco Optimum

0.97

Correlation Coefficient

IShares SP  Invesco Optimum

Almost no diversification

The 3 months correlation between IShares and Invesco is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP GSCI and Invesco Optimum Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Optimum Yield and IShares 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 iShares SP GSCI are associated (or correlated) with Invesco Optimum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Optimum Yield has no effect on the direction of IShares SP i.e., IShares SP and Invesco Optimum go up and down completely randomly.

Pair Corralation between IShares SP and Invesco Optimum

Considering the 90-day investment horizon iShares SP GSCI is expected to under-perform the Invesco Optimum. In addition to that, IShares SP is 1.34 times more volatile than Invesco Optimum Yield. It trades about -0.15 of its total potential returns per unit of risk. Invesco Optimum Yield is currently generating about 0.0 per unit of volatility. If you would invest  1,411  in Invesco Optimum Yield on February 2, 2024 and sell it today you would lose (1.00) from holding Invesco Optimum Yield or give up 0.07% of portfolio value over 90 days.

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

iShares SP GSCI  vs.  Invesco Optimum Yield

iShares SP GSCI

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP GSCI are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, IShares SP may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Invesco Optimum Yield

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Optimum Yield are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental drivers, Invesco Optimum may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with IShares SP and Invesco Optimum

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

The idea behind iShares SP GSCI and Invesco Optimum Yield 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.