Correlation Between Invesco Total and First Trust

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

By analyzing existing cross correlation between Invesco Total Return and First Trust TCW, you can compare the effects of market volatilities on Invesco Total and First Trust 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 Invesco Total with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco Total and First Trust.

Diversification Opportunities for Invesco Total and First Trust

0.99

Correlation Coefficient

Invesco Total  First Trust

No risk reduction

The 3 months correlation between Invesco and First is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Total Return and First Trust TCW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust TCW and Invesco Total 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 Invesco Total Return are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust TCW has no effect on the direction of Invesco Total i.e., Invesco Total and First Trust go up and down completely randomly.

Pair Corralation between Invesco Total and First Trust

Considering the 90-day investment horizon Invesco Total is expected to generate 1.49 times less return on investment than First Trust. But when comparing it to its historical volatility, Invesco Total Return is 1.33 times less risky than First Trust. It trades about 0.12 of its potential returns per unit of risk. First Trust TCW is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4,256  in First Trust TCW on December 28, 2024 and sell it today you would earn a total of  119.00  from holding First Trust TCW or generate 2.8% return on investment over 90 days.

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

Invesco Total Return  vs.  First Trust TCW

Invesco Total Return

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Total Return are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Invesco Total is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

First Trust TCW

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust TCW are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Invesco Total and First Trust

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

The idea behind Invesco Total Return and First Trust TCW 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.