Correlation Between Invesco NASDAQ and First Trust

Can any of the company-specific risk be diversified away by investing in both Invesco NASDAQ 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 NASDAQ 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 NASDAQ 100 and First Trust Nasdaq, you can compare the effects of market volatilities on Invesco NASDAQ 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 NASDAQ with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco NASDAQ and First Trust.

Diversification Opportunities for Invesco NASDAQ and First Trust

0.62

Correlation Coefficient

Invesco NASDAQ  First Trust

Poor diversification

The 3 months correlation between Invesco and First is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Invesco NASDAQ 100 and First Trust Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Nasdaq and Invesco NASDAQ 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 NASDAQ 100 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 Nasdaq has no effect on the direction of Invesco NASDAQ i.e., Invesco NASDAQ and First Trust go up and down completely randomly.

Pair Corralation between Invesco NASDAQ and First Trust

Given the investment horizon of 90 days Invesco NASDAQ 100 is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, Invesco NASDAQ 100 is 1.65 times less risky than First Trust. The etf trades about -0.09 of its potential returns per unit of risk. The First Trust Nasdaq is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  8,571  in First Trust Nasdaq on December 19, 2024 and sell it today you would lose (430.00) from holding First Trust Nasdaq or give up 5.02% of portfolio value over 90 days.

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

Invesco NASDAQ 100  vs.  First Trust Nasdaq

Invesco NASDAQ 100

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco NASDAQ 100 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest sluggish performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

First Trust Nasdaq

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Nasdaq has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, First Trust is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Invesco NASDAQ and First Trust

The main advantage of trading using opposite Invesco NASDAQ and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco NASDAQ 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 NASDAQ 100 and First Trust Nasdaq 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.