Correlation Between FT AlphaDEX and Invesco NASDAQ

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

By analyzing existing cross correlation between FT AlphaDEX Industrials and Invesco NASDAQ 100, you can compare the effects of market volatilities on FT AlphaDEX and Invesco NASDAQ 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 FT AlphaDEX with a short position of Invesco NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of FT AlphaDEX and Invesco NASDAQ.

Diversification Opportunities for FT AlphaDEX and Invesco NASDAQ

0.98

Correlation Coefficient

FT AlphaDEX  Invesco NASDAQ

Almost no diversification

The 3 months correlation between FHG and Invesco is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding FT AlphaDEX Industrials and Invesco NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco NASDAQ 100 and FT AlphaDEX 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 FT AlphaDEX Industrials are associated (or correlated) with Invesco NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco NASDAQ 100 has no effect on the direction of FT AlphaDEX i.e., FT AlphaDEX and Invesco NASDAQ go up and down completely randomly.

Pair Corralation between FT AlphaDEX and Invesco NASDAQ

Assuming the 90 days trading horizon FT AlphaDEX Industrials is expected to generate 1.14 times more return on investment than Invesco NASDAQ. However, FT AlphaDEX is 1.14 times more volatile than Invesco NASDAQ 100. It trades about 0.29 of its potential returns per unit of risk. Invesco NASDAQ 100 is currently generating about 0.23 per unit of risk. If you would invest  5,024  in FT AlphaDEX Industrials on September 5, 2024 and sell it today you would earn a total of  1,099  from holding FT AlphaDEX Industrials or generate 21.88% return on investment over 90 days.

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

FT AlphaDEX Industrials  vs.  Invesco NASDAQ 100

FT AlphaDEX Industrials

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in FT AlphaDEX Industrials are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, FT AlphaDEX displayed solid returns over the last few months and may actually be approaching a breakup point.

Invesco NASDAQ 100

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco NASDAQ 100 are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Invesco NASDAQ displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FT AlphaDEX and Invesco NASDAQ

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

The idea behind FT AlphaDEX Industrials and Invesco NASDAQ 100 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.