Correlation Between First Trust and Invesco SP

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Can any of the company-specific risk be diversified away by investing in both First Trust and Invesco SP 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 First Trust and Invesco SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust SkyBridge and Invesco SP SmallCap, you can compare the effects of market volatilities on First Trust and Invesco SP 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 First Trust with a short position of Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Invesco SP.

Diversification Opportunities for First Trust and Invesco SP

0.95
  Correlation Coefficient

Almost no diversification

The 3 months correlation between First and Invesco is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding First Trust SkyBridge and Invesco SP SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP SmallCap and First Trust 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 First Trust SkyBridge are associated (or correlated) with Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP SmallCap has no effect on the direction of First Trust i.e., First Trust and Invesco SP go up and down completely randomly.

Pair Corralation between First Trust and Invesco SP

Given the investment horizon of 90 days First Trust SkyBridge is expected to generate 3.8 times more return on investment than Invesco SP. However, First Trust is 3.8 times more volatile than Invesco SP SmallCap. It trades about 0.09 of its potential returns per unit of risk. Invesco SP SmallCap is currently generating about 0.1 per unit of risk. If you would invest  492.00  in First Trust SkyBridge on August 29, 2024 and sell it today you would earn a total of  1,396  from holding First Trust SkyBridge or generate 283.74% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

First Trust SkyBridge  vs.  Invesco SP SmallCap

 Performance 
       Timeline  
First Trust SkyBridge 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in First Trust SkyBridge are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, First Trust unveiled solid returns over the last few months and may actually be approaching a breakup point.
Invesco SP SmallCap 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP SmallCap are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile fundamental indicators, Invesco SP demonstrated solid returns over the last few months and may actually be approaching a breakup point.

First Trust and Invesco SP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with First Trust and Invesco SP

The main advantage of trading using opposite First Trust and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Invesco SP 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 Invesco SP will offset losses from the drop in Invesco SP's long position.
The idea behind First Trust SkyBridge and Invesco SP SmallCap 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.

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