Correlation Between IShares SP and Invesco NASDAQ

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

By analyzing existing cross correlation between iShares SP 500 and Invesco NASDAQ 100, you can compare the effects of market volatilities on IShares SP and Invesco NASDAQ 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 SP with a short position of Invesco NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and Invesco NASDAQ.

Diversification Opportunities for IShares SP and Invesco NASDAQ

1.0

Correlation Coefficient

IShares SP  Invesco NASDAQ

No risk reduction

The 3 months correlation between IShares and Invesco is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP 500 and Invesco NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco NASDAQ 100 and IShares 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 iShares SP 500 are associated (or correlated) with Invesco NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco NASDAQ 100 has no effect on the direction of IShares SP i.e., IShares SP and Invesco NASDAQ go up and down completely randomly.

Pair Corralation between IShares SP and Invesco NASDAQ

Considering the 90-day investment horizon iShares SP 500 is expected to generate 1.0 times more return on investment than Invesco NASDAQ. However, iShares SP 500 is 1.0 times less risky than Invesco NASDAQ. It trades about 0.0 of its potential returns per unit of risk. Invesco NASDAQ 100 is currently generating about -0.01 per unit of risk. If you would invest  9,896  in iShares SP 500 on February 3, 2025 and sell it today you would lose (140.00) from holding iShares SP 500 or give up 1.41% of portfolio value over 90 days.

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

iShares SP 500  vs.  Invesco NASDAQ 100

iShares SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IShares SP is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Invesco NASDAQ 100

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco NASDAQ 100 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Invesco NASDAQ is not utilizing all of its potentials. The new stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares SP and Invesco NASDAQ

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

The idea behind iShares SP 500 and Invesco NASDAQ 100 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.