Correlation Between First Trust and Invesco RAFI
Can any of the company-specific risk be diversified away by investing in both First Trust and Invesco RAFI 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 RAFI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Value and Invesco RAFI Strategic, you can compare the effects of market volatilities on First Trust and Invesco RAFI 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 RAFI. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Invesco RAFI.
Diversification Opportunities for First Trust and Invesco RAFI
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and Invesco is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Value and Invesco RAFI Strategic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco RAFI Strategic 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 Value are associated (or correlated) with Invesco RAFI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco RAFI Strategic has no effect on the direction of First Trust i.e., First Trust and Invesco RAFI go up and down completely randomly.
Pair Corralation between First Trust and Invesco RAFI
Considering the 90-day investment horizon First Trust is expected to generate 1.29 times less return on investment than Invesco RAFI. But when comparing it to its historical volatility, First Trust Value is 1.15 times less risky than Invesco RAFI. It trades about 0.22 of its potential returns per unit of risk. Invesco RAFI Strategic is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 5,007 in Invesco RAFI Strategic on August 28, 2024 and sell it today you would earn a total of 203.00 from holding Invesco RAFI Strategic or generate 4.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Value vs. Invesco RAFI Strategic
Performance |
| Timeline |
| First Trust Value |
| Invesco RAFI Strategic |
First Trust and Invesco RAFI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Invesco RAFI
The main advantage of trading using opposite First Trust and Invesco RAFI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Invesco RAFI 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 RAFI will offset losses from the drop in Invesco RAFI's long position.| First Trust vs. First Trust Morningstar | First Trust vs. First Trust Rising | First Trust vs. First Trust Capital | First Trust vs. WisdomTree LargeCap Dividend |
| Invesco RAFI vs. Invesco International BuyBack | Invesco RAFI vs. Invesco Variable Rate | Invesco RAFI vs. First Trust Small | Invesco RAFI vs. First Trust Multi |
Check out your portfolio center.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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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