Correlation Between First Trust and Invesco Aerospace

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

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

Diversification Opportunities for First Trust and Invesco Aerospace

0.54

Correlation Coefficient

First Trust  Invesco Aerospace

Very weak diversification

The 3 months correlation between First and Invesco is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding First Trust IndustrialsProduce and Invesco Aerospace Defense in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Aerospace Defense 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 IndustrialsProducer are associated (or correlated) with Invesco Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Aerospace Defense has no effect on the direction of First Trust i.e., First Trust and Invesco Aerospace go up and down completely randomly.

Pair Corralation between First Trust and Invesco Aerospace

Considering the 90-day investment horizon First Trust IndustrialsProducer is expected to under-perform the Invesco Aerospace. In addition to that, First Trust is 1.1 times more volatile than Invesco Aerospace Defense. It trades about -0.06 of its total potential returns per unit of risk. Invesco Aerospace Defense is currently generating about 0.06 per unit of volatility. If you would invest  11,490  in Invesco Aerospace Defense on December 28, 2024 and sell it today you would earn a total of  403.00  from holding Invesco Aerospace Defense or generate 3.51% return on investment over 90 days.

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

First Trust IndustrialsProduce  vs.  Invesco Aerospace Defense

First Trust Industri

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust IndustrialsProducer has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, First Trust is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Invesco Aerospace Defense

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Aerospace Defense are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Invesco Aerospace is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Invesco Aerospace

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

The idea behind First Trust IndustrialsProducer and Invesco Aerospace Defense 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.