Correlation Between Invesco and First Trust

Can any of the company-specific risk be diversified away by investing in both Invesco 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 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 and First Trust, you can compare the effects of market volatilities on Invesco 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 with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco and First Trust.

Diversification Opportunities for Invesco and First Trust

0.95

Correlation Coefficient

Invesco  First Trust

Almost no diversification

The 3 months correlation between Invesco and First is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Invesco and First Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust and Invesco 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 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 has no effect on the direction of Invesco i.e., Invesco and First Trust go up and down completely randomly.

Pair Corralation between Invesco and First Trust

Given the investment horizon of 90 days Invesco is expected to generate 6.53 times more return on investment than First Trust. However, Invesco is 6.53 times more volatile than First Trust. It trades about 0.1 of its potential returns per unit of risk. First Trust is currently generating about 0.07 per unit of risk. If you would invest  8,574  in Invesco on August 31, 2024 and sell it today you would earn a total of  3,914  from holding Invesco or generate 45.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.54%
Values	Daily Returns

Invesco  vs.  First Trust

Invesco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Invesco is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

First Trust

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Invesco and First Trust

The main advantage of trading using opposite Invesco and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco 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 and First Trust 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.