Correlation Between Invesco SP and First Trust

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Can any of the company-specific risk be diversified away by investing in both Invesco SP 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 SP 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 SP 500 and First Trust Dorsey, you can compare the effects of market volatilities on Invesco SP 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 SP with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco SP and First Trust.

Diversification Opportunities for Invesco SP and First Trust

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Invesco and First is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP 500 and First Trust Dorsey in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Dorsey and Invesco SP 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 SP 500 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 Dorsey has no effect on the direction of Invesco SP i.e., Invesco SP and First Trust go up and down completely randomly.

Pair Corralation between Invesco SP and First Trust

Given the investment horizon of 90 days Invesco SP is expected to generate 1.08 times less return on investment than First Trust. But when comparing it to its historical volatility, Invesco SP 500 is 1.26 times less risky than First Trust. It trades about 0.12 of its potential returns per unit of risk. First Trust Dorsey is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4,423  in First Trust Dorsey on December 30, 2023 and sell it today you would earn a total of  1,300  from holding First Trust Dorsey or generate 29.39% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Invesco SP 500  vs.  First Trust Dorsey

 Performance 
       Timeline  
Invesco SP 500 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 500 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in April 2024.
First Trust Dorsey 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Dorsey are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Invesco SP and First Trust Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Invesco SP and First Trust

The main advantage of trading using opposite Invesco SP and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco SP 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.
The idea behind Invesco SP 500 and First Trust Dorsey 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.

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