Correlation Between Invesco Water and First Trust

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

Diversification Opportunities for Invesco Water and First Trust

0.81

Correlation Coefficient

Invesco Water  First Trust

Very poor diversification

The 3 months correlation between Invesco and First is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Water Resources 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 Water 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 Water Resources 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 Water i.e., Invesco Water and First Trust go up and down completely randomly.

Pair Corralation between Invesco Water and First Trust

Considering the 90-day investment horizon Invesco Water is expected to generate 1.28 times less return on investment than First Trust. But when comparing it to its historical volatility, Invesco Water Resources is 1.1 times less risky than First Trust. It trades about 0.06 of its potential returns per unit of risk. First Trust NASDAQ is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  8,808  in First Trust NASDAQ on September 30, 2024 and sell it today you would earn a total of  3,246  from holding First Trust NASDAQ or generate 36.85% return on investment over 90 days.

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

Invesco Water Resources  vs.  First Trust NASDAQ

Invesco Water Resources

Risk-Adjusted Performance

0 of 100

Very Weak

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

First Trust NASDAQ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust NASDAQ has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, First Trust is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Invesco Water and First Trust

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

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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 Global Correlations module to find global opportunities by holding instruments from different markets.