Correlation Between First Trust and Invesco RAFI

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

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

Diversification Opportunities for First Trust and Invesco RAFI

0.59

Correlation Coefficient

First Trust  Invesco RAFI

Very weak diversification

The 3 months correlation between First and Invesco is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Small and Invesco RAFI Strategic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco RAFI Strategic 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 Small are associated (or correlated) with Invesco RAFI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco RAFI Strategic has no effect on the direction of First Trust i.e., First Trust and Invesco RAFI go up and down completely randomly.

Pair Corralation between First Trust and Invesco RAFI

Considering the 90-day investment horizon First Trust Small is expected to under-perform the Invesco RAFI. In addition to that, First Trust is 1.35 times more volatile than Invesco RAFI Strategic. It trades about -0.13 of its total potential returns per unit of risk. Invesco RAFI Strategic is currently generating about 0.0 per unit of volatility. If you would invest  4,935  in Invesco RAFI Strategic on December 19, 2024 and sell it today you would lose (5.00) from holding Invesco RAFI Strategic or give up 0.1% of portfolio value over 90 days.

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

First Trust Small  vs.  Invesco RAFI Strategic

First Trust Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Small has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Invesco RAFI Strategic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco RAFI Strategic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Invesco RAFI is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with First Trust and Invesco RAFI

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

The idea behind First Trust Small and Invesco RAFI Strategic 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .