Correlation Between Invesco SP and IShares Financials
Can any of the company-specific risk be diversified away by investing in both Invesco SP and IShares Financials 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 Financials 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 Financials ETF, you can compare the effects of market volatilities on Invesco SP and IShares Financials 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 Financials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco SP and IShares Financials.
Diversification Opportunities for Invesco SP and IShares Financials
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Invesco and IShares is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP 500 and iShares Financials ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Financials ETF 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 Financials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Financials ETF has no effect on the direction of Invesco SP i.e., Invesco SP and IShares Financials go up and down completely randomly.
Pair Corralation between Invesco SP and IShares Financials
Considering the 90-day investment horizon Invesco SP 500 is expected to under-perform the IShares Financials. But the etf apears to be less risky and, when comparing its historical volatility, Invesco SP 500 is 1.14 times less risky than IShares Financials. The etf trades about -0.35 of its potential returns per unit of risk. The iShares Financials ETF is currently generating about -0.2 of returns per unit of risk over similar time horizon. If you would invest 11,648 in iShares Financials ETF on October 7, 2024 and sell it today you would lose (492.00) from holding iShares Financials ETF or give up 4.22% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Invesco SP 500 vs. iShares Financials ETF
Performance |
| Timeline |
| Invesco SP 500 |
| iShares Financials ETF |
Invesco SP and IShares Financials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Invesco SP and IShares Financials
The main advantage of trading using opposite Invesco SP and IShares Financials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco SP position performs unexpectedly, IShares Financials 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 Financials will offset losses from the drop in IShares Financials' long position.The idea behind Invesco SP 500 and iShares Financials ETF 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.| IShares Financials vs. iShares Financial Services | IShares Financials vs. iShares Industrials ETF | IShares Financials vs. iShares Consumer Discretionary | IShares Financials vs. iShares Healthcare ETF |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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