Correlation Between IShares Aerospace and Invesco Aerospace

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

Diversification Opportunities for IShares Aerospace and Invesco Aerospace

0.83

Correlation Coefficient

IShares Aerospace  Invesco Aerospace

Very poor diversification

The 3 months correlation between IShares and Invesco is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding iShares Aerospace Defense and Invesco Aerospace Defense in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Aerospace Defense 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 Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Aerospace Defense has no effect on the direction of IShares Aerospace i.e., IShares Aerospace and Invesco Aerospace go up and down completely randomly.

Pair Corralation between IShares Aerospace and Invesco Aerospace

Considering the 90-day investment horizon IShares Aerospace is expected to generate 1.11 times less return on investment than Invesco Aerospace. In addition to that, IShares Aerospace is 1.1 times more volatile than Invesco Aerospace Defense. It trades about 0.08 of its total potential returns per unit of risk. Invesco Aerospace Defense is currently generating about 0.09 per unit of volatility. If you would invest  10,294  in Invesco Aerospace Defense on October 1, 2024 and sell it today you would earn a total of  1,333  from holding Invesco Aerospace Defense or generate 12.95% return on investment over 90 days.

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

iShares Aerospace Defense  vs.  Invesco Aerospace Defense

iShares Aerospace Defense

Risk-Adjusted Performance

0 of 100

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 Aerospace Defense

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Aerospace Defense are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Invesco Aerospace is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Aerospace and Invesco Aerospace

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

The idea behind iShares Aerospace Defense and Invesco Aerospace Defense 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.