Correlation Between First Trust and Invesco DWA

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

By analyzing existing cross correlation between First Trust Active and Invesco DWA SmallCap, you can compare the effects of market volatilities on First Trust and Invesco DWA 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 DWA. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Invesco DWA.

Diversification Opportunities for First Trust and Invesco DWA

0.91

Correlation Coefficient

First Trust  Invesco DWA

Almost no diversification

The 3 months correlation between First and Invesco is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Active and Invesco DWA SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA SmallCap 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 Active are associated (or correlated) with Invesco DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DWA SmallCap has no effect on the direction of First Trust i.e., First Trust and Invesco DWA go up and down completely randomly.

Pair Corralation between First Trust and Invesco DWA

Given the investment horizon of 90 days First Trust Active is expected to generate 0.54 times more return on investment than Invesco DWA. However, First Trust Active is 1.84 times less risky than Invesco DWA. It trades about -0.05 of its potential returns per unit of risk. Invesco DWA SmallCap is currently generating about -0.12 per unit of risk. If you would invest  3,178  in First Trust Active on December 20, 2024 and sell it today you would lose (109.00) from holding First Trust Active or give up 3.43% of portfolio value over 90 days.

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

First Trust Active  vs.  Invesco DWA SmallCap

First Trust Active

Risk-Adjusted Performance

Very Weak

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

Invesco DWA SmallCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco DWA SmallCap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

Pair Trading with First Trust and Invesco DWA

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

The idea behind First Trust Active and Invesco DWA SmallCap 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.