Correlation Between First Trust and Invesco Water
Can any of the company-specific risk be diversified away by investing in both First Trust and Invesco Water 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 Water into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Materials and Invesco Water Resources, you can compare the effects of market volatilities on First Trust and Invesco Water 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 Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Invesco Water.
Diversification Opportunities for First Trust and Invesco Water
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Invesco is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Materials and Invesco Water Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Water Resources 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 Materials are associated (or correlated) with Invesco Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Water Resources has no effect on the direction of First Trust i.e., First Trust and Invesco Water go up and down completely randomly.
Pair Corralation between First Trust and Invesco Water
Considering the 90-day investment horizon First Trust is expected to generate 2.81 times less return on investment than Invesco Water. In addition to that, First Trust is 1.26 times more volatile than Invesco Water Resources. It trades about 0.02 of its total potential returns per unit of risk. Invesco Water Resources is currently generating about 0.09 per unit of volatility. If you would invest 5,290 in Invesco Water Resources on August 31, 2024 and sell it today you would earn a total of 1,864 from holding Invesco Water Resources or generate 35.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Materials vs. Invesco Water Resources
Performance |
| Timeline |
| First Trust Materials |
| Invesco Water Resources |
First Trust and Invesco Water Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Invesco Water
The main advantage of trading using opposite First Trust and Invesco Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Invesco Water 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 Water will offset losses from the drop in Invesco Water's long position.| First Trust vs. First Trust IndustrialsProducer | First Trust vs. First Trust Consumer | First Trust vs. First Trust Financials | First Trust vs. First Trust Energy |
| Invesco Water vs. Invesco SP Global | Invesco Water vs. Invesco Global Water | Invesco Water vs. First Trust Water | Invesco Water vs. Invesco WilderHill Clean |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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