Correlation Between Invesco International and First Trust

Can any of the company-specific risk be diversified away by investing in both Invesco International 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 International 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 International BuyBack and First Trust Multi, you can compare the effects of market volatilities on Invesco International 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 International with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco International and First Trust.

Diversification Opportunities for Invesco International and First Trust

-0.41

Correlation Coefficient

Invesco International  First Trust

Very good diversification

The 3 months correlation between Invesco and First is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Invesco International BuyBack and First Trust Multi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Multi and Invesco International 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 International BuyBack 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 Multi has no effect on the direction of Invesco International i.e., Invesco International and First Trust go up and down completely randomly.

Pair Corralation between Invesco International and First Trust

Given the investment horizon of 90 days Invesco International is expected to generate 1.97 times less return on investment than First Trust. But when comparing it to its historical volatility, Invesco International BuyBack is 1.14 times less risky than First Trust. It trades about 0.04 of its potential returns per unit of risk. First Trust Multi is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  9,711  in First Trust Multi on October 11, 2024 and sell it today you would earn a total of  4,256  from holding First Trust Multi or generate 43.83% return on investment over 90 days.

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

Invesco International BuyBack  vs.  First Trust Multi

Invesco International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco International BuyBack has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward-looking signals, Invesco International is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

First Trust Multi

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Multi are ranked lower than 3 (%) 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Invesco International and First Trust

The main advantage of trading using opposite Invesco International and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco International 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 International BuyBack and First Trust Multi 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.