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 Developed 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

0.67

Correlation Coefficient

Invesco DWA  First Trust

Poor diversification

The 3 months correlation between Invesco and First is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Developed 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 Developed 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 is expected to generate 2.28 times less return on investment than First Trust. But when comparing it to its historical volatility, Invesco DWA Developed is 1.21 times less risky than First Trust. It trades about 0.1 of its potential returns per unit of risk. First Trust Dorsey is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  5,915  in First Trust Dorsey on October 20, 2024 and sell it today you would earn a total of  193.00  from holding First Trust Dorsey or generate 3.26% return on investment over 90 days.

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

Invesco DWA Developed  vs.  First Trust Dorsey

Invesco DWA Developed

Risk-Adjusted Performance

0 of 100

Very Weak

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

First Trust Dorsey

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Dorsey are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, First Trust is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the 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 Developed 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.