Correlation Between Invesco Solar and First Trust

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

Diversification Opportunities for Invesco Solar and First Trust

0.88

Correlation Coefficient

Invesco Solar  First Trust

Very poor diversification

The 3 months correlation between Invesco and First is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Solar ETF and First Trust NASDAQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NASDAQ and Invesco Solar 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 Solar ETF 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 NASDAQ has no effect on the direction of Invesco Solar i.e., Invesco Solar and First Trust go up and down completely randomly.

Pair Corralation between Invesco Solar and First Trust

Considering the 90-day investment horizon Invesco Solar is expected to generate 7.81 times less return on investment than First Trust. But when comparing it to its historical volatility, Invesco Solar ETF is 1.02 times less risky than First Trust. It trades about 0.01 of its potential returns per unit of risk. First Trust NASDAQ is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,270  in First Trust NASDAQ on February 12, 2024 and sell it today you would earn a total of  128.00  from holding First Trust NASDAQ or generate 3.91% return on investment over 90 days.

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

Invesco Solar ETF  vs.  First Trust NASDAQ

Invesco Solar ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Solar ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

First Trust NASDAQ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust NASDAQ has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Etf's essential indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with Invesco Solar and First Trust

The main advantage of trading using opposite Invesco Solar and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco Solar 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 Solar ETF and First Trust NASDAQ 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.

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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..