Correlation Between IShares Financial and Invesco KBW
Can any of the company-specific risk be diversified away by investing in both IShares Financial and Invesco KBW 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 Financial and Invesco KBW into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Financial Services and Invesco KBW Bank, you can compare the effects of market volatilities on IShares Financial and Invesco KBW 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 Financial with a short position of Invesco KBW. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Financial and Invesco KBW.
Diversification Opportunities for IShares Financial and Invesco KBW
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between IShares and Invesco is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding iShares Financial Services and Invesco KBW Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco KBW Bank and IShares Financial 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 Financial Services are associated (or correlated) with Invesco KBW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco KBW Bank has no effect on the direction of IShares Financial i.e., IShares Financial and Invesco KBW go up and down completely randomly.
Pair Corralation between IShares Financial and Invesco KBW
Considering the 90-day investment horizon IShares Financial is expected to generate 1.23 times less return on investment than Invesco KBW. But when comparing it to its historical volatility, iShares Financial Services is 1.45 times less risky than Invesco KBW. It trades about 0.1 of its potential returns per unit of risk. Invesco KBW Bank is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 4,016 in Invesco KBW Bank on December 4, 2024 and sell it today you would earn a total of 2,944 from holding Invesco KBW Bank or generate 73.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.79% |
| Values | Daily Returns |
iShares Financial Services vs. Invesco KBW Bank
Performance |
| Timeline |
| iShares Financial |
| Invesco KBW Bank |
IShares Financial and Invesco KBW Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Financial and Invesco KBW
The main advantage of trading using opposite IShares Financial and Invesco KBW positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Financial position performs unexpectedly, Invesco KBW 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 KBW will offset losses from the drop in Invesco KBW's long position.| IShares Financial vs. iShares Financials ETF | ||
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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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