Correlation Between Altus Power and First Trust

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

By analyzing existing cross correlation between Altus Power and First Trust EIP, you can compare the effects of market volatilities on Altus Power 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 Altus Power with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Altus Power and First Trust.

Diversification Opportunities for Altus Power and First Trust

0.42

Correlation Coefficient

Altus Power  First Trust

Very weak diversification

The 3 months correlation between Altus and First is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Altus Power and First Trust EIP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust EIP and Altus Power 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 Altus Power 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 EIP has no effect on the direction of Altus Power i.e., Altus Power and First Trust go up and down completely randomly.

Pair Corralation between Altus Power and First Trust

Given the investment horizon of 90 days Altus Power is expected to generate 9.26 times more return on investment than First Trust. However, Altus Power is 9.26 times more volatile than First Trust EIP. It trades about 0.11 of its potential returns per unit of risk. First Trust EIP is currently generating about 0.26 per unit of risk. If you would invest  312.00  in Altus Power on August 30, 2024 and sell it today you would earn a total of  124.00  from holding Altus Power or generate 39.74% return on investment over 90 days.

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

Altus Power  vs.  First Trust EIP

Altus Power

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Altus Power are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Altus Power unveiled solid returns over the last few months and may actually be approaching a breakup point.

First Trust EIP

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust EIP are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Altus Power and First Trust

The main advantage of trading using opposite Altus Power and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Altus Power 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 Altus Power and First Trust EIP 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.