Correlation Between Invesco DWA and First Trust
Can any of the company-specific risk be diversified away by investing in both Invesco DWA 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 DWA 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 DWA Developed and First Trust Small, you can compare the effects of market volatilities on Invesco DWA 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 DWA with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco DWA and First Trust.
Diversification Opportunities for Invesco DWA and First Trust
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Invesco and First is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Developed and First Trust Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Small and Invesco DWA 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 DWA Developed 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 Small has no effect on the direction of Invesco DWA i.e., Invesco DWA and First Trust go up and down completely randomly.
Pair Corralation between Invesco DWA and First Trust
Considering the 90-day investment horizon Invesco DWA is expected to generate 42.22 times less return on investment than First Trust. But when comparing it to its historical volatility, Invesco DWA Developed is 2.63 times less risky than First Trust. It trades about 0.02 of its potential returns per unit of risk. First Trust Small is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 7,583 in First Trust Small on August 27, 2024 and sell it today you would earn a total of 737.00 from holding First Trust Small or generate 9.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Invesco DWA Developed vs. First Trust Small
Performance |
| Timeline |
| Invesco DWA Developed |
| First Trust Small |
Invesco DWA and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Invesco DWA and First Trust
The main advantage of trading using opposite Invesco DWA and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco DWA 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 DWA vs. iShares MSCI Intl | Invesco DWA vs. iShares Edge MSCI | Invesco DWA vs. iShares MSCI Emerging | Invesco DWA vs. iShares MSCI Intl |
| First Trust vs. Invesco DWA Momentum | First Trust vs. Invesco DWA Developed | First Trust vs. Invesco DWA Emerging | First Trust vs. First Trust Small |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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