Correlation Between Invesco California and First Trust

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

Diversification Opportunities for Invesco California and First Trust

0.87

Correlation Coefficient

Invesco California  First Trust

Very poor diversification

The 3 months correlation between Invesco and First is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Invesco California AMT Free and First Trust California in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust California and Invesco California 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 California AMT Free 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 California has no effect on the direction of Invesco California i.e., Invesco California and First Trust go up and down completely randomly.

Pair Corralation between Invesco California and First Trust

Considering the 90-day investment horizon Invesco California AMT Free is expected to generate 1.55 times more return on investment than First Trust. However, Invesco California is 1.55 times more volatile than First Trust California. It trades about 0.06 of its potential returns per unit of risk. First Trust California is currently generating about 0.06 per unit of risk. If you would invest  2,463  in Invesco California AMT Free on August 30, 2024 and sell it today you would earn a total of  43.00  from holding Invesco California AMT Free or generate 1.75% return on investment over 90 days.

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

Invesco California AMT Free  vs.  First Trust California

Invesco California AMT

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco California AMT Free are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Invesco California is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

First Trust California

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust California are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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 California and First Trust

The main advantage of trading using opposite Invesco California and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco California 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 California AMT Free and First Trust California 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.