Correlation Between Invesco SP and FlexShares ESG

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

By analyzing existing cross correlation between Invesco SP 500 and FlexShares ESG Climate, you can compare the effects of market volatilities on Invesco SP and FlexShares 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 SP with a short position of FlexShares ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco SP and FlexShares ESG.

Diversification Opportunities for Invesco SP and FlexShares ESG

0.98

Correlation Coefficient

Invesco SP  FlexShares ESG

Almost no diversification

The 3 months correlation between Invesco and FlexShares is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP 500 and FlexShares ESG Climate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares ESG Climate and Invesco SP 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 SP 500 are associated (or correlated) with FlexShares ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares ESG Climate has no effect on the direction of Invesco SP i.e., Invesco SP and FlexShares ESG go up and down completely randomly.

Pair Corralation between Invesco SP and FlexShares ESG

Considering the 90-day investment horizon Invesco SP is expected to generate 1.05 times less return on investment than FlexShares ESG. But when comparing it to its historical volatility, Invesco SP 500 is 1.09 times less risky than FlexShares ESG. It trades about 0.2 of its potential returns per unit of risk. FlexShares ESG Climate is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  6,203  in FlexShares ESG Climate on September 2, 2024 and sell it today you would earn a total of  555.00  from holding FlexShares ESG Climate or generate 8.95% return on investment over 90 days.

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

Invesco SP 500  vs.  FlexShares ESG Climate

Invesco SP 500

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 500 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

FlexShares ESG Climate

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares ESG Climate are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, FlexShares ESG may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Invesco SP and FlexShares ESG

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

The idea behind Invesco SP 500 and FlexShares ESG Climate 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.