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 Health, 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

0.83

Correlation Coefficient

Invesco Dynamic  First Trust

Very poor diversification

The 3 months correlation between Invesco and First is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Dynamic Biotechnology and First Trust Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Health 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 Health 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 Biotechnology is expected to under-perform the First Trust. In addition to that, Invesco Dynamic is 1.22 times more volatile than First Trust Health. It trades about -0.05 of its total potential returns per unit of risk. First Trust Health is currently generating about -0.02 per unit of volatility. If you would invest  10,561  in First Trust Health on December 27, 2024 and sell it today you would lose (144.00) from holding First Trust Health or give up 1.36% of portfolio value over 90 days.

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

Invesco Dynamic Biotechnology  vs.  First Trust Health

Invesco Dynamic Biot

Risk-Adjusted Performance

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 Health

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, First Trust is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

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 Health 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..