Correlation Between Invesco SP and IShares Financials

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

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

Diversification Opportunities for Invesco SP and IShares Financials

0.48

Correlation Coefficient

Invesco SP  IShares Financials

Very weak diversification

The 3 months correlation between Invesco and IShares is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP International and iShares Financials ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Financials ETF 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 International are associated (or correlated) with IShares Financials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Financials ETF has no effect on the direction of Invesco SP i.e., Invesco SP and IShares Financials go up and down completely randomly.

Pair Corralation between Invesco SP and IShares Financials

Given the investment horizon of 90 days Invesco SP International is expected to under-perform the IShares Financials. But the etf apears to be less risky and, when comparing its historical volatility, Invesco SP International is 1.29 times less risky than IShares Financials. The etf trades about -0.02 of its potential returns per unit of risk. The iShares Financials ETF is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  9,049  in iShares Financials ETF on January 31, 2024 and sell it today you would earn a total of  167.00  from holding iShares Financials ETF or generate 1.85% return on investment over 90 days.

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

Invesco SP International  vs.  iShares Financials ETF

Invesco SP International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco SP International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Invesco SP is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares Financials ETF

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Financials ETF are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, IShares Financials may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Invesco SP and IShares Financials

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

The idea behind Invesco SP International and iShares Financials ETF 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.

Check out your portfolio center.

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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.