Correlation Between IShares Aerospace and Invesco NASDAQ

Can any of the company-specific risk be diversified away by investing in both IShares Aerospace 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 Aerospace 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 Aerospace Defense and Invesco NASDAQ Internet, you can compare the effects of market volatilities on IShares Aerospace 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 Aerospace with a short position of Invesco NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Aerospace and Invesco NASDAQ.

Diversification Opportunities for IShares Aerospace and Invesco NASDAQ

0.68

Correlation Coefficient

IShares Aerospace  Invesco NASDAQ

Poor diversification

The 3 months correlation between IShares and Invesco is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding iShares Aerospace Defense and Invesco NASDAQ Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco NASDAQ Internet and IShares Aerospace 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 Aerospace Defense 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 Internet has no effect on the direction of IShares Aerospace i.e., IShares Aerospace and Invesco NASDAQ go up and down completely randomly.

Pair Corralation between IShares Aerospace and Invesco NASDAQ

Considering the 90-day investment horizon iShares Aerospace Defense is expected to generate 0.87 times more return on investment than Invesco NASDAQ. However, iShares Aerospace Defense is 1.15 times less risky than Invesco NASDAQ. It trades about -0.02 of its potential returns per unit of risk. Invesco NASDAQ Internet is currently generating about -0.08 per unit of risk. If you would invest  15,624  in iShares Aerospace Defense on January 18, 2025 and sell it today you would lose (669.00) from holding iShares Aerospace Defense or give up 4.28% of portfolio value over 90 days.

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

iShares Aerospace Defense  vs.  Invesco NASDAQ Internet

iShares Aerospace Defense

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Aerospace Defense has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares Aerospace is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Invesco NASDAQ Internet

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco NASDAQ Internet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Etf's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the Etf traders.

Pair Trading with IShares Aerospace and Invesco NASDAQ

The main advantage of trading using opposite IShares Aerospace and Invesco NASDAQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Aerospace 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 Aerospace Defense and Invesco NASDAQ Internet 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.