Correlation Between Invesco Municipal and First Trust

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

Diversification Opportunities for Invesco Municipal and First Trust

0.79

Correlation Coefficient

Invesco Municipal  First Trust

Poor diversification

The 3 months correlation between Invesco and First is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Municipal Opportunity and First Trust Intermediate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Intermediate and Invesco Municipal 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 Municipal Opportunity 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 Intermediate has no effect on the direction of Invesco Municipal i.e., Invesco Municipal and First Trust go up and down completely randomly.

Pair Corralation between Invesco Municipal and First Trust

Considering the 90-day investment horizon Invesco Municipal is expected to generate 2.21 times less return on investment than First Trust. But when comparing it to its historical volatility, Invesco Municipal Opportunity is 1.33 times less risky than First Trust. It trades about 0.03 of its potential returns per unit of risk. First Trust Intermediate is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,460  in First Trust Intermediate on September 26, 2024 and sell it today you would earn a total of  347.00  from holding First Trust Intermediate or generate 23.77% return on investment over 90 days.

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

Invesco Municipal Opportunity  vs.  First Trust Intermediate

Invesco Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Municipal Opportunity has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Invesco Municipal is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

First Trust Intermediate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Intermediate has generated negative risk-adjusted returns adding no value to fund investors. Despite nearly stable basic indicators, First Trust is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Invesco Municipal and First Trust

The main advantage of trading using opposite Invesco Municipal and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco Municipal 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 Municipal Opportunity and First Trust Intermediate 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.