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 Exchange Traded and Invesco KBW High, 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
-0.28 | Correlation Coefficient |
Very good diversification
The 3 months correlation between First and Invesco is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and Invesco KBW High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco KBW High 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 Exchange Traded 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 High 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
Given the investment horizon of 90 days First Trust is expected to generate 23.44 times less return on investment than Invesco KBW. But when comparing it to its historical volatility, First Trust Exchange Traded is 1.57 times less risky than Invesco KBW. It trades about 0.03 of its potential returns per unit of risk. Invesco KBW High is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest 1,443 in Invesco KBW High on September 3, 2024 and sell it today you would earn a total of 108.00 from holding Invesco KBW High or generate 7.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Exchange Traded vs. Invesco KBW High
Performance |
| Timeline |
| First Trust Exchange |
| Invesco KBW High |
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 Exchange Traded | First Trust vs. First Trust Expanded | First Trust vs. BlackRock Future Health | First Trust vs. SPDR SP Health |
| Invesco KBW vs. Invesco Exchange Traded | Invesco KBW vs. Invesco Markets plc | Invesco KBW vs. Invesco DWA SmallCap | Invesco KBW vs. Invesco Variable Rate |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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