Correlation Between Invesco Global and First Trust

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

Diversification Opportunities for Invesco Global and First Trust

0.88

Correlation Coefficient

Invesco Global  First Trust

Very poor diversification

The 3 months correlation between Invesco and First is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Global Water 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 Global 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 Global Water 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 Global i.e., Invesco Global and First Trust go up and down completely randomly.

Pair Corralation between Invesco Global and First Trust

Considering the 90-day investment horizon Invesco Global Water is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, Invesco Global Water is 1.23 times less risky than First Trust. The etf trades about -0.18 of its potential returns per unit of risk. The First Trust NASDAQ is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  12,697  in First Trust NASDAQ on September 30, 2024 and sell it today you would lose (643.00) from holding First Trust NASDAQ or give up 5.06% of portfolio value over 90 days.

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

Invesco Global Water  vs.  First Trust NASDAQ

Invesco Global Water

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Global Water has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's forward 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

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 Global and First Trust

The main advantage of trading using opposite Invesco Global and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco Global 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 Global Water 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.