Correlation Between First Trust and Invesco KBW
Can any of the company-specific risk be diversified away by investing in both First Trust and Invesco KBW 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 KBW into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Financials and Invesco KBW Regional, you can compare the effects of market volatilities on First Trust and Invesco KBW 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 KBW. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Invesco KBW.
Diversification Opportunities for First Trust and Invesco KBW
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and Invesco is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Financials and Invesco KBW Regional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco KBW Regional 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 Financials are associated (or correlated) with Invesco KBW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco KBW Regional has no effect on the direction of First Trust i.e., First Trust and Invesco KBW go up and down completely randomly.
Pair Corralation between First Trust and Invesco KBW
Considering the 90-day investment horizon First Trust Financials is expected to generate 0.63 times more return on investment than Invesco KBW. However, First Trust Financials is 1.6 times less risky than Invesco KBW. It trades about 0.08 of its potential returns per unit of risk. Invesco KBW Regional is currently generating about 0.04 per unit of risk. If you would invest 3,405 in First Trust Financials on December 4, 2024 and sell it today you would earn a total of 2,101 from holding First Trust Financials or generate 61.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Financials vs. Invesco KBW Regional
Performance |
| Timeline |
| First Trust Financials |
| Invesco KBW Regional |
First Trust and Invesco KBW Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Invesco KBW
The main advantage of trading using opposite First Trust and Invesco KBW positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Invesco KBW 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 KBW will offset losses from the drop in Invesco KBW's long position.| First Trust vs. First Trust Consumer | ||
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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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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