Correlation Between First Trust and Invesco CEF

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

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

Diversification Opportunities for First Trust and Invesco CEF

0.57

Correlation Coefficient

First Trust  Invesco CEF

Very weak diversification

The 3 months correlation between First and Invesco is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Multi Asset and Invesco CEF Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco CEF Income 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 Multi Asset are associated (or correlated) with Invesco CEF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco CEF Income has no effect on the direction of First Trust i.e., First Trust and Invesco CEF go up and down completely randomly.

Pair Corralation between First Trust and Invesco CEF

Given the investment horizon of 90 days First Trust Multi Asset is expected to under-perform the Invesco CEF. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Multi Asset is 1.2 times less risky than Invesco CEF. The etf trades about -0.04 of its potential returns per unit of risk. The Invesco CEF Income is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,923  in Invesco CEF Income on October 7, 2024 and sell it today you would earn a total of  13.00  from holding Invesco CEF Income or generate 0.68% return on investment over 90 days.

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

First Trust Multi Asset  vs.  Invesco CEF Income

First Trust Multi

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Multi Asset has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward indicators, First Trust is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Invesco CEF Income

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco CEF Income are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Invesco CEF is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with First Trust and Invesco CEF

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

The idea behind First Trust Multi Asset and Invesco CEF Income 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 Anywhere module to track or share privately all of your investments from the convenience of any device.