Correlation Between First Trust and Invesco SP

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

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

Diversification Opportunities for First Trust and Invesco SP

0.83

Correlation Coefficient

First Trust  Invesco SP

Very poor diversification

The 3 months correlation between First and Invesco is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Materials and Invesco SP Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP Global 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 Materials are associated (or correlated) with Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP Global has no effect on the direction of First Trust i.e., First Trust and Invesco SP go up and down completely randomly.

Pair Corralation between First Trust and Invesco SP

Considering the 90-day investment horizon First Trust Materials is expected to under-perform the Invesco SP. In addition to that, First Trust is 1.12 times more volatile than Invesco SP Global. It trades about -0.54 of its total potential returns per unit of risk. Invesco SP Global is currently generating about -0.33 per unit of volatility. If you would invest  5,868  in Invesco SP Global on September 27, 2024 and sell it today you would lose (391.00) from holding Invesco SP Global or give up 6.66% of portfolio value over 90 days.

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

First Trust Materials  vs.  Invesco SP Global

First Trust Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Invesco SP Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco SP Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's technical and fundamental indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with First Trust and Invesco SP

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

The idea behind First Trust Materials and Invesco SP Global 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.