Correlation Between Invesco KBW and First Trust
Can any of the company-specific risk be diversified away by investing in both Invesco KBW and First Trust 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 Invesco KBW and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Invesco KBW Regional and First Trust Nasdaq, you can compare the effects of market volatilities on Invesco KBW and First Trust 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 Invesco KBW with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco KBW and First Trust.
Diversification Opportunities for Invesco KBW and First Trust
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Invesco and First is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Invesco KBW Regional and First Trust Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Nasdaq and Invesco KBW 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 Invesco KBW Regional are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Nasdaq has no effect on the direction of Invesco KBW i.e., Invesco KBW and First Trust go up and down completely randomly.
Pair Corralation between Invesco KBW and First Trust
Given the investment horizon of 90 days Invesco KBW is expected to generate 1.2 times less return on investment than First Trust. In addition to that, Invesco KBW is 1.24 times more volatile than First Trust Nasdaq. It trades about 0.09 of its total potential returns per unit of risk. First Trust Nasdaq is currently generating about 0.13 per unit of volatility. If you would invest 2,121 in First Trust Nasdaq on August 24, 2024 and sell it today you would earn a total of 1,296 from holding First Trust Nasdaq or generate 61.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Invesco KBW Regional vs. First Trust Nasdaq
Performance |
| Timeline |
| Invesco KBW Regional |
| First Trust Nasdaq |
Invesco KBW and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Invesco KBW and First Trust
The main advantage of trading using opposite Invesco KBW and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco KBW position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| Invesco KBW vs. First Trust NASDAQ | Invesco KBW vs. Invesco KBW Bank | Invesco KBW vs. Invesco KBW Property | Invesco KBW vs. Invesco SP SmallCap |
| First Trust vs. First Trust NASDAQ | First Trust vs. First Trust Nasdaq | First Trust vs. First Trust Nasdaq | First Trust vs. Invesco KBW Regional |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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