Correlation Between First Trust and Invesco Water

Can any of the company-specific risk be diversified away by investing in both First Trust and Invesco Water 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 Water into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Trust Water and Invesco Water Resources, you can compare the effects of market volatilities on First Trust and Invesco Water 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 Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Invesco Water.

Diversification Opportunities for First Trust and Invesco Water

0.92

Correlation Coefficient

First Trust  Invesco Water

Almost no diversification

The 3 months correlation between First and Invesco is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Water and Invesco Water Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Water Resources 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 Water are associated (or correlated) with Invesco Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Water Resources has no effect on the direction of First Trust i.e., First Trust and Invesco Water go up and down completely randomly.

Pair Corralation between First Trust and Invesco Water

Considering the 90-day investment horizon First Trust Water is expected to generate 1.12 times more return on investment than Invesco Water. However, First Trust is 1.12 times more volatile than Invesco Water Resources. It trades about 0.3 of its potential returns per unit of risk. Invesco Water Resources is currently generating about 0.28 per unit of risk. If you would invest  9,950  in First Trust Water on February 10, 2024 and sell it today you would earn a total of  572.00  from holding First Trust Water or generate 5.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

First Trust Water  vs.  Invesco Water Resources

First Trust Water

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Water are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain forward indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Invesco Water Resources

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Water Resources are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical indicators, Invesco Water may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with First Trust and Invesco Water

The main advantage of trading using opposite First Trust and Invesco Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Invesco Water 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 Water will offset losses from the drop in Invesco Water's long position.

The idea behind First Trust Water and Invesco Water Resources pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.