Correlation Between IShares Core and Invesco SP

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Can any of the company-specific risk be diversified away by investing in both IShares Core and Invesco SP 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 Core and Invesco SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Core SP and Invesco SP SmallCap, you can compare the effects of market volatilities on IShares Core and Invesco SP 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 Core with a short position of Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and Invesco SP.

Diversification Opportunities for IShares Core and Invesco SP

0.93
  Correlation Coefficient

Almost no diversification

The 3 months correlation between IShares and Invesco is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and Invesco SP SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP SmallCap and IShares Core 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 Core SP are associated (or correlated) with Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP SmallCap has no effect on the direction of IShares Core i.e., IShares Core and Invesco SP go up and down completely randomly.

Pair Corralation between IShares Core and Invesco SP

Considering the 90-day investment horizon IShares Core is expected to generate 1.27 times less return on investment than Invesco SP. But when comparing it to its historical volatility, iShares Core SP is 1.22 times less risky than Invesco SP. It trades about 0.07 of its potential returns per unit of risk. Invesco SP SmallCap is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,653  in Invesco SP SmallCap on September 12, 2024 and sell it today you would earn a total of  2,504  from holding Invesco SP SmallCap or generate 53.81% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

iShares Core SP  vs.  Invesco SP SmallCap

 Performance 
       Timeline  
iShares Core SP 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile forward-looking indicators, IShares Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Invesco SP SmallCap 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP SmallCap are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Invesco SP reported solid returns over the last few months and may actually be approaching a breakup point.

IShares Core and Invesco SP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with IShares Core and Invesco SP

The main advantage of trading using opposite IShares Core and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core position performs unexpectedly, Invesco SP 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 SP will offset losses from the drop in Invesco SP's long position.
The idea behind iShares Core SP and Invesco SP SmallCap 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.
Check out your portfolio center.
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 Transaction History module to view history of all your transactions and understand their impact on performance.

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