Correlation Between IShares Transportation and Invesco SP
Can any of the company-specific risk be diversified away by investing in both IShares Transportation 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 Transportation 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 Transportation Average and Invesco SP 500, you can compare the effects of market volatilities on IShares Transportation 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 Transportation with a short position of Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Transportation and Invesco SP.
Diversification Opportunities for IShares Transportation and Invesco SP
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between IShares and Invesco is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding iShares Transportation Average and Invesco SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 500 and IShares Transportation 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 Transportation Average 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 500 has no effect on the direction of IShares Transportation i.e., IShares Transportation and Invesco SP go up and down completely randomly.
Pair Corralation between IShares Transportation and Invesco SP
Considering the 90-day investment horizon iShares Transportation Average is expected to generate 1.45 times more return on investment than Invesco SP. However, IShares Transportation is 1.45 times more volatile than Invesco SP 500. It trades about 0.15 of its potential returns per unit of risk. Invesco SP 500 is currently generating about 0.09 per unit of risk. If you would invest 6,872 in iShares Transportation Average on August 28, 2024 and sell it today you would earn a total of 592.00 from holding iShares Transportation Average or generate 8.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Transportation Average vs. Invesco SP 500
Performance |
| Timeline |
| iShares Transportation |
| Invesco SP 500 |
IShares Transportation and Invesco SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Transportation and Invesco SP
The main advantage of trading using opposite IShares Transportation and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Transportation 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 Transportation Average and Invesco SP 500 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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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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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