Correlation Between Invesco KBW and First Trust

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

Diversification Opportunities for Invesco KBW and First Trust

0.58

Correlation Coefficient

Invesco KBW  First Trust

Very weak diversification

The 3 months correlation between Invesco and First is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Invesco KBW Regional and First Trust Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Nasdaq and Invesco KBW 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 KBW Regional 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 Nasdaq has no effect on the direction of Invesco KBW i.e., Invesco KBW and First Trust go up and down completely randomly.

Pair Corralation between Invesco KBW and First Trust

Given the investment horizon of 90 days Invesco KBW Regional is expected to generate 0.92 times more return on investment than First Trust. However, Invesco KBW Regional is 1.09 times less risky than First Trust. It trades about -0.01 of its potential returns per unit of risk. First Trust Nasdaq is currently generating about -0.42 per unit of risk. If you would invest  6,511  in Invesco KBW Regional on September 19, 2024 and sell it today you would lose (23.00) from holding Invesco KBW Regional or give up 0.35% of portfolio value over 90 days.

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

Invesco KBW Regional  vs.  First Trust Nasdaq

Invesco KBW Regional

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco KBW Regional are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Invesco KBW may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Trust Nasdaq

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Nasdaq has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Invesco KBW and First Trust

The main advantage of trading using opposite Invesco KBW and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco KBW 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 KBW Regional and First Trust Nasdaq 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 .