Correlation Between Invesco SP and First Trust

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

Diversification Opportunities for Invesco SP and First Trust

0.97

Correlation Coefficient

Invesco SP  First Trust

Almost no diversification

The 3 months correlation between Invesco and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP SmallCap and First Trust RBA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust RBA and Invesco SP 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 SP SmallCap 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 RBA has no effect on the direction of Invesco SP i.e., Invesco SP and First Trust go up and down completely randomly.

Pair Corralation between Invesco SP and First Trust

Given the investment horizon of 90 days Invesco SP SmallCap is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, Invesco SP SmallCap is 1.3 times less risky than First Trust. The etf trades about -0.12 of its potential returns per unit of risk. The First Trust RBA is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  7,771  in First Trust RBA on December 27, 2024 and sell it today you would lose (708.00) from holding First Trust RBA or give up 9.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Invesco SP SmallCap  vs.  First Trust RBA

Invesco SP SmallCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco SP SmallCap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Etf's fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the Etf traders.

First Trust RBA

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust RBA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest inconsistent performance, the Etf's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Pair Trading with Invesco SP and First Trust

The main advantage of trading using opposite Invesco SP and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco SP 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 SP SmallCap and First Trust RBA 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 Stocks Directory module to find actively traded stocks across global markets.