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 NASDAQ and Invesco KBW Bank, 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
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Invesco is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding First Trust NASDAQ and Invesco KBW Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco KBW Bank 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 NASDAQ 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 Bank 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 1.64 times less return on investment than Invesco KBW. In addition to that, First Trust is 1.14 times more volatile than Invesco KBW Bank. It trades about 0.02 of its total potential returns per unit of risk. Invesco KBW Bank is currently generating about 0.04 per unit of volatility. If you would invest 5,471 in Invesco KBW Bank on November 2, 2024 and sell it today you would earn a total of 1,639 from holding Invesco KBW Bank or generate 29.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust NASDAQ vs. Invesco KBW Bank
Performance |
| Timeline |
| First Trust NASDAQ |
| Invesco KBW Bank |
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. Invesco KBW Regional | First Trust vs. Invesco SP SmallCap | First Trust vs. First Trust Nasdaq | First Trust vs. First Trust NASDAQ 100 |
| Invesco KBW vs. Invesco KBW Regional | Invesco KBW vs. SPDR SP Bank | Invesco KBW vs. SPDR SP Regional | Invesco KBW vs. iShares Regional Banks |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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