Correlation Between First Trust and Invesco PHLX

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

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

Diversification Opportunities for First Trust and Invesco PHLX

0.1

Correlation Coefficient

First Trust  Invesco PHLX

Average diversification

The 3 months correlation between First and Invesco is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dow and Invesco PHLX Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco PHLX Semicon 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 Dow are associated (or correlated) with Invesco PHLX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco PHLX Semicon has no effect on the direction of First Trust i.e., First Trust and Invesco PHLX go up and down completely randomly.

Pair Corralation between First Trust and Invesco PHLX

Considering the 90-day investment horizon First Trust Dow is expected to generate 0.52 times more return on investment than Invesco PHLX. However, First Trust Dow is 1.91 times less risky than Invesco PHLX. It trades about 0.1 of its potential returns per unit of risk. Invesco PHLX Semiconductor is currently generating about 0.03 per unit of risk. If you would invest  20,568  in First Trust Dow on October 25, 2024 and sell it today you would earn a total of  5,058  from holding First Trust Dow or generate 24.59% return on investment over 90 days.

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

First Trust Dow  vs.  Invesco PHLX Semiconductor

First Trust Dow

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Dow are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, First Trust displayed solid returns over the last few months and may actually be approaching a breakup point.

Invesco PHLX Semicon

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco PHLX Semiconductor are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Invesco PHLX is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with First Trust and Invesco PHLX

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

The idea behind First Trust Dow and Invesco PHLX Semiconductor 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.

Check out your portfolio center.

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.