Correlation Between First Trust and Invesco Solar
Can any of the company-specific risk be diversified away by investing in both First Trust and Invesco Solar 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 Solar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust NASDAQ and Invesco Solar ETF, you can compare the effects of market volatilities on First Trust and Invesco Solar 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 Solar. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Invesco Solar.
Diversification Opportunities for First Trust and Invesco Solar
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and Invesco is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding First Trust NASDAQ and Invesco Solar ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Solar ETF 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 NASDAQ are associated (or correlated) with Invesco Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Solar ETF has no effect on the direction of First Trust i.e., First Trust and Invesco Solar go up and down completely randomly.
Pair Corralation between First Trust and Invesco Solar
Given the investment horizon of 90 days First Trust NASDAQ is expected to under-perform the Invesco Solar. But the etf apears to be less risky and, when comparing its historical volatility, First Trust NASDAQ is 1.01 times less risky than Invesco Solar. The etf trades about -0.03 of its potential returns per unit of risk. The Invesco Solar ETF is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 6,738 in Invesco Solar ETF on January 25, 2024 and sell it today you would lose (2,688) from holding Invesco Solar ETF or give up 39.89% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust NASDAQ vs. Invesco Solar ETF
Performance |
| Timeline |
| First Trust NASDAQ |
| Invesco Solar ETF |
First Trust and Invesco Solar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Invesco Solar
The main advantage of trading using opposite First Trust and Invesco Solar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Invesco Solar 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 Solar will offset losses from the drop in Invesco Solar's long position.The idea behind First Trust NASDAQ and Invesco Solar 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.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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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