Correlation Between First Trust and Invesco MSCI

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

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

Diversification Opportunities for First Trust and Invesco MSCI

0.35

Correlation Coefficient

First Trust  Invesco MSCI

Weak diversification

The 3 months correlation between First and Invesco is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding First Trust NASDAQ and Invesco MSCI Sustainable in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco MSCI Sustainable 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 NASDAQ are associated (or correlated) with Invesco MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco MSCI Sustainable has no effect on the direction of First Trust i.e., First Trust and Invesco MSCI go up and down completely randomly.

Pair Corralation between First Trust and Invesco MSCI

Given the investment horizon of 90 days First Trust NASDAQ is expected to generate 0.72 times more return on investment than Invesco MSCI. However, First Trust NASDAQ is 1.38 times less risky than Invesco MSCI. It trades about 0.04 of its potential returns per unit of risk. Invesco MSCI Sustainable is currently generating about -0.02 per unit of risk. If you would invest  12,236  in First Trust NASDAQ on September 15, 2024 and sell it today you would earn a total of  225.00  from holding First Trust NASDAQ or generate 1.84% return on investment over 90 days.

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

First Trust NASDAQ  vs.  Invesco MSCI Sustainable

First Trust NASDAQ

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust NASDAQ are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward indicators, First Trust is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Invesco MSCI Sustainable

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco MSCI Sustainable has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Invesco MSCI is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Trust and Invesco MSCI

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

The idea behind First Trust NASDAQ and Invesco MSCI Sustainable 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.