Correlation Between Invesco CEF and First Trust

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

Diversification Opportunities for Invesco CEF and First Trust

0.96

Correlation Coefficient

Invesco CEF  First Trust

Almost no diversification

The 3 months correlation between Invesco and First is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Invesco CEF Income and First Trust Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Income and Invesco CEF 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 CEF Income 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 Income has no effect on the direction of Invesco CEF i.e., Invesco CEF and First Trust go up and down completely randomly.

Pair Corralation between Invesco CEF and First Trust

Given the investment horizon of 90 days Invesco CEF is expected to generate 1.64 times less return on investment than First Trust. In addition to that, Invesco CEF is 1.05 times more volatile than First Trust Income. It trades about 0.08 of its total potential returns per unit of risk. First Trust Income is currently generating about 0.14 per unit of volatility. If you would invest  2,082  in First Trust Income on December 19, 2024 and sell it today you would earn a total of  94.00  from holding First Trust Income or generate 4.51% return on investment over 90 days.

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

Invesco CEF Income  vs.  First Trust Income

Invesco CEF Income

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco CEF Income are ranked lower than 6 (%) 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.

First Trust Income

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Income are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Invesco CEF and First Trust

The main advantage of trading using opposite Invesco CEF and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco CEF 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 CEF Income and First Trust 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 Transaction History module to view history of all your transactions and understand their impact on performance.