Correlation Between Invesco KBW and First Trust

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

Diversification Opportunities for Invesco KBW and First Trust

0.02
  Correlation Coefficient

Significant diversification

The 3 months correlation between Invesco and First is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Invesco KBW High and First Trust SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust SP and Invesco KBW 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 KBW High are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust SP has no effect on the direction of Invesco KBW i.e., Invesco KBW and First Trust go up and down completely randomly.

Pair Corralation between Invesco KBW and First Trust

Given the investment horizon of 90 days Invesco KBW High is expected to generate 0.94 times more return on investment than First Trust. However, Invesco KBW High is 1.06 times less risky than First Trust. It trades about 0.05 of its potential returns per unit of risk. First Trust SP is currently generating about -0.03 per unit of risk. If you would invest  1,480  in Invesco KBW High on March 7, 2024 and sell it today you would earn a total of  42.00  from holding Invesco KBW High or generate 2.84% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Invesco KBW High  vs.  First Trust SP

 Performance 
       Timeline  
Invesco KBW High 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Invesco KBW High are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Invesco KBW is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.
First Trust SP 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days First Trust SP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, First Trust is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Invesco KBW and First Trust Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Invesco KBW and First Trust

The main advantage of trading using opposite Invesco KBW and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco KBW position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.
The idea behind Invesco KBW High and First Trust SP 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.

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