Correlation Between Invesco BulletShares and IShares Trust

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

By analyzing existing cross correlation between Invesco BulletShares 2024 and iShares Trust, you can compare the effects of market volatilities on Invesco BulletShares and IShares Trust 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 BulletShares with a short position of IShares Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco BulletShares and IShares Trust.

Diversification Opportunities for Invesco BulletShares and IShares Trust

0.49

Correlation Coefficient

Invesco BulletShares  IShares Trust

Very weak diversification

The 3 months correlation between Invesco and IShares is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Invesco BulletShares 2024 and iShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Trust and Invesco BulletShares 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 BulletShares 2024 are associated (or correlated) with IShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Trust has no effect on the direction of Invesco BulletShares i.e., Invesco BulletShares and IShares Trust go up and down completely randomly.

Pair Corralation between Invesco BulletShares and IShares Trust

Given the investment horizon of 90 days Invesco BulletShares is expected to generate 1.1 times less return on investment than IShares Trust. But when comparing it to its historical volatility, Invesco BulletShares 2024 is 3.34 times less risky than IShares Trust. It trades about 0.68 of its potential returns per unit of risk. iShares Trust is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,524  in iShares Trust on August 30, 2024 and sell it today you would earn a total of  33.00  from holding iShares Trust or generate 1.31% return on investment over 90 days.

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

Invesco BulletShares 2024  vs.  iShares Trust

Invesco BulletShares 2024

Risk-Adjusted Performance

53 of 100

Excellent

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco BulletShares 2024 are ranked lower than 53 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Invesco BulletShares is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares Trust

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward indicators, IShares Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Invesco BulletShares and IShares Trust

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

The idea behind Invesco BulletShares 2024 and iShares Trust 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.