Correlation Between First Trust and Invesco

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Can any of the company-specific risk be diversified away by investing in both First Trust and Invesco 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 First Trust and Invesco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Japan and Invesco, you can compare the effects of market volatilities on First Trust and Invesco 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 First Trust with a short position of Invesco. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Invesco.

Diversification Opportunities for First Trust and Invesco

0.2
  Correlation Coefficient

Modest diversification

The 3 months correlation between First and Invesco is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Japan and Invesco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco and First Trust 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 First Trust Japan are associated (or correlated) with Invesco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco has no effect on the direction of First Trust i.e., First Trust and Invesco go up and down completely randomly.

Pair Corralation between First Trust and Invesco

Considering the 90-day investment horizon First Trust Japan is expected to generate 0.87 times more return on investment than Invesco. However, First Trust Japan is 1.15 times less risky than Invesco. It trades about 0.07 of its potential returns per unit of risk. Invesco is currently generating about 0.0 per unit of risk. If you would invest  3,889  in First Trust Japan on December 29, 2023 and sell it today you would earn a total of  1,641  from holding First Trust Japan or generate 42.2% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy70.51%
ValuesDaily Returns

First Trust Japan  vs.  Invesco

 Performance 
       Timeline  
First Trust Japan 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Japan are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain forward-looking indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Invesco 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Invesco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Invesco is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

First Trust and Invesco Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with First Trust and Invesco

The main advantage of trading using opposite First Trust and Invesco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Invesco 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 will offset losses from the drop in Invesco's long position.
The idea behind First Trust Japan and Invesco 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.
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.

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