Correlation Between Invesco DWA and First Trust

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

Diversification Opportunities for Invesco DWA and First Trust

0.29

Correlation Coefficient

Invesco DWA  First Trust

Modest diversification

The 3 months correlation between Invesco and First is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Emerging and First Trust Dorsey in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Dorsey and Invesco DWA 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 DWA Emerging 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 Dorsey has no effect on the direction of Invesco DWA i.e., Invesco DWA and First Trust go up and down completely randomly.

Pair Corralation between Invesco DWA and First Trust

Considering the 90-day investment horizon Invesco DWA Emerging is expected to generate 0.78 times more return on investment than First Trust. However, Invesco DWA Emerging is 1.28 times less risky than First Trust. It trades about 0.03 of its potential returns per unit of risk. First Trust Dorsey is currently generating about -0.27 per unit of risk. If you would invest  1,839  in Invesco DWA Emerging on December 4, 2024 and sell it today you would earn a total of  9.00  from holding Invesco DWA Emerging or generate 0.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Invesco DWA Emerging  vs.  First Trust Dorsey

Invesco DWA Emerging

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco DWA Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's forward indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

First Trust Dorsey

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Dorsey has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with Invesco DWA and First Trust

The main advantage of trading using opposite Invesco DWA and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco DWA 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 DWA Emerging and First Trust Dorsey 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.