Correlation Between Invesco Russell and First Trust

Can any of the company-specific risk be diversified away by investing in both Invesco Russell 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 Russell 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 Russell 1000 and First Trust Dow, you can compare the effects of market volatilities on Invesco Russell 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 Russell with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco Russell and First Trust.

Diversification Opportunities for Invesco Russell and First Trust

0.81

Correlation Coefficient

Invesco Russell  First Trust

Very poor diversification

The 3 months correlation between Invesco and First is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Russell 1000 and First Trust Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Dow and Invesco Russell 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 Russell 1000 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 Dow has no effect on the direction of Invesco Russell i.e., Invesco Russell and First Trust go up and down completely randomly.

Pair Corralation between Invesco Russell and First Trust

Given the investment horizon of 90 days Invesco Russell 1000 is expected to under-perform the First Trust. In addition to that, Invesco Russell is 1.12 times more volatile than First Trust Dow. It trades about -0.01 of its total potential returns per unit of risk. First Trust Dow is currently generating about 0.0 per unit of volatility. If you would invest  3,654  in First Trust Dow on December 20, 2024 and sell it today you would lose (4.00) from holding First Trust Dow or give up 0.11% of portfolio value over 90 days.

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

Invesco Russell 1000  vs.  First Trust Dow

Invesco Russell 1000

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Russell 1000 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Invesco Russell is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

First Trust Dow

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Invesco Russell and First Trust

The main advantage of trading using opposite Invesco Russell and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco Russell 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 Russell 1000 and First Trust Dow 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.