Correlation Between Invesco High and First Trust

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

Diversification Opportunities for Invesco High and First Trust

-0.28

Correlation Coefficient

Invesco High  First Trust

Very good diversification

The 3 months correlation between Invesco and First is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Invesco High Yield 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 High 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 High Yield 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 High i.e., Invesco High and First Trust go up and down completely randomly.

Pair Corralation between Invesco High and First Trust

Considering the 90-day investment horizon Invesco High Yield is expected to generate 1.25 times more return on investment than First Trust. However, Invesco High is 1.25 times more volatile than First Trust Dow. It trades about 0.03 of its potential returns per unit of risk. First Trust Dow is currently generating about 0.03 per unit of risk. If you would invest  1,900  in Invesco High Yield on September 19, 2024 and sell it today you would earn a total of  262.00  from holding Invesco High Yield or generate 13.79% return on investment over 90 days.

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

Invesco High Yield  vs.  First Trust Dow

Invesco High Yield

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Invesco High Yield has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Invesco High is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

First Trust Dow

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Invesco High and First Trust

The main advantage of trading using opposite Invesco High and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco High 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 High Yield 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.