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 NASDAQ and Invesco DWA Utilities, 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
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Invesco is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding First Trust NASDAQ and Invesco DWA Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Utilities 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 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 Utilities 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
Given the investment horizon of 90 days First Trust is expected to generate 2.81 times less return on investment than Invesco DWA. In addition to that, First Trust is 1.03 times more volatile than Invesco DWA Utilities. It trades about 0.12 of its total potential returns per unit of risk. Invesco DWA Utilities is currently generating about 0.34 per unit of volatility. If you would invest 3,988 in Invesco DWA Utilities on September 1, 2024 and sell it today you would earn a total of 279.00 from holding Invesco DWA Utilities or generate 7.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
First Trust NASDAQ vs. Invesco DWA Utilities
Performance |
| Timeline |
| First Trust NASDAQ |
| Invesco DWA Utilities |
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 NASDAQ 100 Technology | First Trust vs. First Trust Rising | First Trust vs. WisdomTree Quality Dividend | First Trust vs. First Trust Technology |
| Invesco DWA vs. Utilities Select Sector | Invesco DWA vs. Vanguard Utilities Index | Invesco DWA vs. Altus Power | Invesco DWA vs. iShares Utilities ETF |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
Other Complementary Tools
| Price Ceiling Movement Calculate and plot Price Ceiling Movement for different equity instruments | |
| Idea Analyzer Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas | |
| Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon | |
| Headlines Timeline Stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity | |
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated |