Correlation Between Invesco SP and IShares Regional

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

Diversification Opportunities for Invesco SP and IShares Regional

-0.07

Correlation Coefficient

Invesco SP  IShares Regional

Good diversification

The 3 months correlation between Invesco and IShares is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP 500 and iShares Regional Banks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Regional Banks 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 IShares Regional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Regional Banks has no effect on the direction of Invesco SP i.e., Invesco SP and IShares Regional go up and down completely randomly.

Pair Corralation between Invesco SP and IShares Regional

Considering the 90-day investment horizon Invesco SP is expected to generate 4.19 times less return on investment than IShares Regional. But when comparing it to its historical volatility, Invesco SP 500 is 1.72 times less risky than IShares Regional. It trades about 0.03 of its potential returns per unit of risk. iShares Regional Banks is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,640  in iShares Regional Banks on September 12, 2024 and sell it today you would earn a total of  1,777  from holding iShares Regional Banks or generate 48.82% return on investment over 90 days.

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

Invesco SP 500  vs.  iShares Regional Banks

Invesco SP 500

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 500 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Invesco SP is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares Regional Banks

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Regional Banks are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, IShares Regional unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Invesco SP and IShares Regional

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

The idea behind Invesco SP 500 and iShares Regional Banks 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.