Correlation Between First Trust and Invesco Active

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

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

Diversification Opportunities for First Trust and Invesco Active

0.89

Correlation Coefficient

First Trust  Invesco Active

Very poor diversification

The 3 months correlation between First and Invesco is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding First Trust SP and Invesco Active Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Active Real 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 SP are associated (or correlated) with Invesco Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Active Real has no effect on the direction of First Trust i.e., First Trust and Invesco Active go up and down completely randomly.

Pair Corralation between First Trust and Invesco Active

Considering the 90-day investment horizon First Trust is expected to generate 1.69 times less return on investment than Invesco Active. In addition to that, First Trust is 1.01 times more volatile than Invesco Active Real. It trades about 0.03 of its total potential returns per unit of risk. Invesco Active Real is currently generating about 0.05 per unit of volatility. If you would invest  8,896  in Invesco Active Real on December 28, 2024 and sell it today you would earn a total of  244.00  from holding Invesco Active Real or generate 2.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

First Trust SP  vs.  Invesco Active Real

First Trust SP

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust SP are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, First Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Invesco Active Real

Risk-Adjusted Performance

Insignificant

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

Pair Trading with First Trust and Invesco Active

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

The idea behind First Trust SP and Invesco Active Real 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.