Correlation Between Invesco SP and IShares SPTSX

Can any of the company-specific risk be diversified away by investing in both Invesco SP and IShares SPTSX 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 SPTSX 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 SPTSX 60, you can compare the effects of market volatilities on Invesco SP and IShares SPTSX 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 SPTSX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco SP and IShares SPTSX.

Diversification Opportunities for Invesco SP and IShares SPTSX

0.84

Correlation Coefficient

Invesco SP  IShares SPTSX

Very poor diversification

The 3 months correlation between Invesco and IShares is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP 500 and iShares SPTSX 60 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SPTSX 60 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 SPTSX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SPTSX 60 has no effect on the direction of Invesco SP i.e., Invesco SP and IShares SPTSX go up and down completely randomly.

Pair Corralation between Invesco SP and IShares SPTSX

Assuming the 90 days trading horizon Invesco SP is expected to generate 3.32 times less return on investment than IShares SPTSX. But when comparing it to its historical volatility, Invesco SP 500 is 3.81 times less risky than IShares SPTSX. It trades about 0.08 of its potential returns per unit of risk. iShares SPTSX 60 is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,653  in iShares SPTSX 60 on August 6, 2024 and sell it today you would earn a total of  24.00  from holding iShares SPTSX 60 or generate 0.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.0%
Values	Daily Returns

Invesco SP 500  vs.  iShares SPTSX 60

Invesco SP 500

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 500 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Invesco SP is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

iShares SPTSX 60

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SPTSX 60 are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares SPTSX may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Invesco SP and IShares SPTSX

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

The idea behind Invesco SP 500 and iShares SPTSX 60 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.