Correlation Between First Trust and Invesco New

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

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

Diversification Opportunities for First Trust and Invesco New

0.87

Correlation Coefficient

First Trust  Invesco New

Very poor diversification

The 3 months correlation between First and Invesco is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding First Trust California and Invesco New York in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco New York 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 California are associated (or correlated) with Invesco New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco New York has no effect on the direction of First Trust i.e., First Trust and Invesco New go up and down completely randomly.

Pair Corralation between First Trust and Invesco New

Given the investment horizon of 90 days First Trust California is expected to generate 0.87 times more return on investment than Invesco New. However, First Trust California is 1.15 times less risky than Invesco New. It trades about 0.01 of its potential returns per unit of risk. Invesco New York is currently generating about -0.05 per unit of risk. If you would invest  4,989  in First Trust California on September 15, 2024 and sell it today you would earn a total of  5.00  from holding First Trust California or generate 0.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

First Trust California  vs.  Invesco New York

First Trust California

Risk-Adjusted Performance

0 of 100

Very Weak

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

Invesco New York

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco New York has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Invesco New is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with First Trust and Invesco New

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

The idea behind First Trust California and Invesco New York 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.