Correlation Between Invesco DB and IShares SP

Can any of the company-specific risk be diversified away by investing in both Invesco DB and IShares 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 Invesco DB and IShares SP into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Invesco DB Base and iShares SP GSCI, you can compare the effects of market volatilities on Invesco DB and IShares 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 Invesco DB with a short position of IShares SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco DB and IShares SP.

Diversification Opportunities for Invesco DB and IShares SP

0.68

Correlation Coefficient

Invesco DB  IShares SP

Poor diversification

The 3 months correlation between Invesco and IShares is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DB Base and iShares SP GSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP GSCI and Invesco DB 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 DB Base are associated (or correlated) with IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP GSCI has no effect on the direction of Invesco DB i.e., Invesco DB and IShares SP go up and down completely randomly.

Pair Corralation between Invesco DB and IShares SP

Considering the 90-day investment horizon Invesco DB Base is expected to generate 0.92 times more return on investment than IShares SP. However, Invesco DB Base is 1.09 times less risky than IShares SP. It trades about -0.06 of its potential returns per unit of risk. iShares SP GSCI is currently generating about -0.1 per unit of risk. If you would invest  1,892  in Invesco DB Base on February 1, 2025 and sell it today you would lose (94.00) from holding Invesco DB Base or give up 4.97% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Invesco DB Base  vs.  iShares SP GSCI

Invesco DB Base

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco DB Base has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Invesco DB is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

iShares SP GSCI

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares SP GSCI has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Etf's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Pair Trading with Invesco DB and IShares SP

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

The idea behind Invesco DB Base and iShares SP GSCI 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.