Correlation Between IShares SP and Invesco Exchange

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

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

Diversification Opportunities for IShares SP and Invesco Exchange

0.81

Correlation Coefficient

IShares SP  Invesco Exchange

Very poor diversification

The 3 months correlation between IShares and Invesco is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP Mid Cap and Invesco Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Exchange Traded 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 Mid Cap are associated (or correlated) with Invesco Exchange. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Exchange Traded has no effect on the direction of IShares SP i.e., IShares SP and Invesco Exchange go up and down completely randomly.

Pair Corralation between IShares SP and Invesco Exchange

Considering the 90-day investment horizon iShares SP Mid Cap is expected to generate 1.79 times more return on investment than Invesco Exchange. However, IShares SP is 1.79 times more volatile than Invesco Exchange Traded. It trades about -0.13 of its potential returns per unit of risk. Invesco Exchange Traded is currently generating about -0.36 per unit of risk. If you would invest  12,861  in iShares SP Mid Cap on September 21, 2024 and sell it today you would lose (454.00) from holding iShares SP Mid Cap or give up 3.53% of portfolio value over 90 days.

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

iShares SP Mid Cap  vs.  Invesco Exchange Traded

iShares SP Mid

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Mid Cap are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady forward-looking indicators, IShares SP is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Invesco Exchange Traded

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Exchange Traded has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Invesco Exchange is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares SP and Invesco Exchange

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

The idea behind iShares SP Mid Cap and Invesco Exchange Traded 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.