Correlation Between First Trust and Invesco DWA
Can any of the company-specific risk be diversified away by investing in both First Trust and Invesco DWA 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 DWA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Small and Invesco DWA Developed, you can compare the effects of market volatilities on First Trust and Invesco DWA 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 DWA. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Invesco DWA.
Diversification Opportunities for First Trust and Invesco DWA
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between First and Invesco is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Small and Invesco DWA Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Developed 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 Small are associated (or correlated) with Invesco DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DWA Developed has no effect on the direction of First Trust i.e., First Trust and Invesco DWA go up and down completely randomly.
Pair Corralation between First Trust and Invesco DWA
Considering the 90-day investment horizon First Trust Small is expected to generate 2.39 times more return on investment than Invesco DWA. However, First Trust is 2.39 times more volatile than Invesco DWA Developed. It trades about 0.27 of its potential returns per unit of risk. Invesco DWA Developed is currently generating about 0.12 per unit of risk. If you would invest 9,834 in First Trust Small on August 26, 2024 and sell it today you would earn a total of 1,045 from holding First Trust Small or generate 10.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Small vs. Invesco DWA Developed
Performance |
| Timeline |
| First Trust Small |
| Invesco DWA Developed |
First Trust and Invesco DWA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Invesco DWA
The main advantage of trading using opposite First Trust and Invesco DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Invesco DWA 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 DWA will offset losses from the drop in Invesco DWA's long position.| First Trust vs. First Trust Mid | First Trust vs. First Trust Large | First Trust vs. First Trust Large | First Trust vs. First Trust Large |
| Invesco DWA vs. Invesco DWA Emerging | Invesco DWA vs. Invesco DWA Momentum | Invesco DWA vs. Invesco DWA SmallCap | Invesco DWA vs. Invesco FTSE RAFI |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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