Correlation Between Invesco NASDAQ and IShares ESG

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

By analyzing existing cross correlation between Invesco NASDAQ 100 and iShares ESG Aware, you can compare the effects of market volatilities on Invesco NASDAQ and IShares ESG 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 NASDAQ with a short position of IShares ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco NASDAQ and IShares ESG.

Diversification Opportunities for Invesco NASDAQ and IShares ESG

0.94

Correlation Coefficient

Invesco NASDAQ  IShares ESG

Almost no diversification

The 3 months correlation between Invesco and IShares is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Invesco NASDAQ 100 and iShares ESG Aware in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Aware and Invesco NASDAQ 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 NASDAQ 100 are associated (or correlated) with IShares ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares ESG Aware has no effect on the direction of Invesco NASDAQ i.e., Invesco NASDAQ and IShares ESG go up and down completely randomly.

Pair Corralation between Invesco NASDAQ and IShares ESG

Assuming the 90 days trading horizon Invesco NASDAQ 100 is expected to generate 1.95 times more return on investment than IShares ESG. However, Invesco NASDAQ is 1.95 times more volatile than iShares ESG Aware. It trades about 0.26 of its potential returns per unit of risk. iShares ESG Aware is currently generating about 0.26 per unit of risk. If you would invest  3,138  in Invesco NASDAQ 100 on September 15, 2024 and sell it today you would earn a total of  551.00  from holding Invesco NASDAQ 100 or generate 17.56% return on investment over 90 days.

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

Invesco NASDAQ 100  vs.  iShares ESG Aware

Invesco NASDAQ 100

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco NASDAQ 100 are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Invesco NASDAQ displayed solid returns over the last few months and may actually be approaching a breakup point.

iShares ESG Aware

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Aware are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares ESG may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Invesco NASDAQ and IShares ESG

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

The idea behind Invesco NASDAQ 100 and iShares ESG Aware 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.