Correlation Between Invesco BulletShares and First Trust

Can any of the company-specific risk be diversified away by investing in both Invesco BulletShares 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 BulletShares 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 BulletShares 2024 and First Trust Tactical, you can compare the effects of market volatilities on Invesco BulletShares 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 BulletShares with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco BulletShares and First Trust.

Diversification Opportunities for Invesco BulletShares and First Trust

0.98

Correlation Coefficient

Invesco BulletShares  First Trust

Almost no diversification

The 3 months correlation between Invesco and First is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Invesco BulletShares 2024 and First Trust Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Tactical and Invesco BulletShares 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 BulletShares 2024 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 Tactical has no effect on the direction of Invesco BulletShares i.e., Invesco BulletShares and First Trust go up and down completely randomly.

Pair Corralation between Invesco BulletShares and First Trust

Given the investment horizon of 90 days Invesco BulletShares is expected to generate 3.11 times less return on investment than First Trust. But when comparing it to its historical volatility, Invesco BulletShares 2024 is 5.0 times less risky than First Trust. It trades about 0.55 of its potential returns per unit of risk. First Trust Tactical is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  4,021  in First Trust Tactical on July 5, 2024 and sell it today you would earn a total of  176.00  from holding First Trust Tactical or generate 4.38% return on investment over 90 days.

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

Invesco BulletShares 2024  vs.  First Trust Tactical

Invesco BulletShares 2024

Risk-Adjusted Performance

43 of 100

Excellent

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco BulletShares 2024 are ranked lower than 43 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Invesco BulletShares is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

First Trust Tactical

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Tactical are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, First Trust is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Invesco BulletShares and First Trust

The main advantage of trading using opposite Invesco BulletShares and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco BulletShares 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 BulletShares 2024 and First Trust Tactical 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.