Correlation Between First Trust and Invesco India

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

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

Diversification Opportunities for First Trust and Invesco India

0.95

Correlation Coefficient

First Trust  Invesco India

Almost no diversification

The 3 months correlation between First and Invesco is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding First Trust India and Invesco India ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco India ETF 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 India are associated (or correlated) with Invesco India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco India ETF has no effect on the direction of First Trust i.e., First Trust and Invesco India go up and down completely randomly.

Pair Corralation between First Trust and Invesco India

Given the investment horizon of 90 days First Trust is expected to generate 1.44 times less return on investment than Invesco India. In addition to that, First Trust is 1.38 times more volatile than Invesco India ETF. It trades about 0.12 of its total potential returns per unit of risk. Invesco India ETF is currently generating about 0.25 per unit of volatility. If you would invest  2,625  in Invesco India ETF on January 24, 2024 and sell it today you would earn a total of  77.00  from holding Invesco India ETF or generate 2.93% 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 India  vs.  Invesco India ETF

First Trust India

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust India are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, First Trust is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Invesco India ETF

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco India ETF are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Invesco India is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Invesco India

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

The idea behind First Trust India and Invesco India ETF 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.