Correlation Between IShares Technology and Invesco Next

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

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

Diversification Opportunities for IShares Technology and Invesco Next

0.86

Correlation Coefficient

IShares Technology  Invesco Next

Very poor diversification

The 3 months correlation between IShares and Invesco is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding iShares Technology ETF and Invesco Next Gen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Next Gen and IShares Technology 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 Technology ETF are associated (or correlated) with Invesco Next. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Next Gen has no effect on the direction of IShares Technology i.e., IShares Technology and Invesco Next go up and down completely randomly.

Pair Corralation between IShares Technology and Invesco Next

Considering the 90-day investment horizon IShares Technology is expected to generate 1.25 times less return on investment than Invesco Next. In addition to that, IShares Technology is 1.04 times more volatile than Invesco Next Gen. It trades about 0.09 of its total potential returns per unit of risk. Invesco Next Gen is currently generating about 0.11 per unit of volatility. If you would invest  4,722  in Invesco Next Gen on August 30, 2024 and sell it today you would earn a total of  425.00  from holding Invesco Next Gen or generate 9.0% return on investment over 90 days.

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

iShares Technology ETF  vs.  Invesco Next Gen

iShares Technology ETF

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Technology ETF are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, IShares Technology may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Invesco Next Gen

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Next Gen are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Invesco Next may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with IShares Technology and Invesco Next

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

The idea behind iShares Technology ETF and Invesco Next Gen 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.