Correlation Between Invesco Dynamic and First Trust

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

Diversification Opportunities for Invesco Dynamic and First Trust

0.1

Correlation Coefficient

Invesco Dynamic  First Trust

Average diversification

The 3 months correlation between Invesco and First is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Dynamic Biotechnology and First Trust Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Dow and Invesco Dynamic 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 Dynamic Biotechnology 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 Dow has no effect on the direction of Invesco Dynamic i.e., Invesco Dynamic and First Trust go up and down completely randomly.

Pair Corralation between Invesco Dynamic and First Trust

Considering the 90-day investment horizon Invesco Dynamic is expected to generate 30.64 times less return on investment than First Trust. In addition to that, Invesco Dynamic is 1.19 times more volatile than First Trust Dow. It trades about 0.01 of its total potential returns per unit of risk. First Trust Dow is currently generating about 0.36 per unit of volatility. If you would invest  20,104  in First Trust Dow on September 12, 2024 and sell it today you would earn a total of  5,052  from holding First Trust Dow or generate 25.13% return on investment over 90 days.

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

Invesco Dynamic Biotechnology  vs.  First Trust Dow

Invesco Dynamic Biot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Dynamic Biotechnology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Invesco Dynamic is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

First Trust Dow

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Dow are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, First Trust displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Invesco Dynamic and First Trust

The main advantage of trading using opposite Invesco Dynamic and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco Dynamic 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 Dynamic Biotechnology and First Trust Dow 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.