Correlation Between First Trust and Invesco Dynamic

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

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

Diversification Opportunities for First Trust and Invesco Dynamic

0.49

Correlation Coefficient

First Trust  Invesco Dynamic

Very weak diversification

The 3 months correlation between First and Invesco is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Consumer and Invesco Dynamic Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Dynamic Food 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 Consumer are associated (or correlated) with Invesco Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Dynamic Food has no effect on the direction of First Trust i.e., First Trust and Invesco Dynamic go up and down completely randomly.

Pair Corralation between First Trust and Invesco Dynamic

Considering the 90-day investment horizon First Trust Consumer is expected to generate 0.98 times more return on investment than Invesco Dynamic. However, First Trust Consumer is 1.02 times less risky than Invesco Dynamic. It trades about 0.02 of its potential returns per unit of risk. Invesco Dynamic Food is currently generating about -0.04 per unit of risk. If you would invest  6,436  in First Trust Consumer on December 27, 2024 and sell it today you would earn a total of  40.00  from holding First Trust Consumer or generate 0.62% return on investment over 90 days.

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

First Trust Consumer  vs.  Invesco Dynamic Food

First Trust Consumer

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Consumer are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, First Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Invesco Dynamic Food

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Dynamic Food has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady fundamental drivers, Invesco Dynamic is not utilizing all of its potentials. The newest stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with First Trust and Invesco Dynamic

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

The idea behind First Trust Consumer and Invesco Dynamic Food 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.