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 Energy and Invesco Dynamic Oil, 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

0.74

Correlation Coefficient

First Trust  Invesco Dynamic

Poor diversification

The 3 months correlation between First and Invesco is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Energy and Invesco Dynamic Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Dynamic Oil 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 Energy 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 Oil 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 Energy is expected to under-perform the Invesco Dynamic. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Energy is 1.26 times less risky than Invesco Dynamic. The etf trades about -0.32 of its potential returns per unit of risk. The Invesco Dynamic Oil is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  2,919  in Invesco Dynamic Oil on September 17, 2024 and sell it today you would lose (131.28) from holding Invesco Dynamic Oil or give up 4.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

First Trust Energy  vs.  Invesco Dynamic Oil

First Trust Energy

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days First Trust Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Invesco Dynamic Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Dynamic Oil has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, Invesco Dynamic is not utilizing all of its potentials. The latest 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 Energy and Invesco Dynamic Oil 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.