Correlation Between First Trust and Relative Sentiment

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

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

Diversification Opportunities for First Trust and Relative Sentiment

0.84

Correlation Coefficient

First Trust  Relative Sentiment

Very poor diversification

The 3 months correlation between First and Relative is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and Relative Sentiment Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Relative Sentiment 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 Exchange Traded are associated (or correlated) with Relative Sentiment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Relative Sentiment has no effect on the direction of First Trust i.e., First Trust and Relative Sentiment go up and down completely randomly.

Pair Corralation between First Trust and Relative Sentiment

Given the investment horizon of 90 days First Trust is expected to generate 1.51 times less return on investment than Relative Sentiment. But when comparing it to its historical volatility, First Trust Exchange Traded is 3.45 times less risky than Relative Sentiment. It trades about 0.33 of its potential returns per unit of risk. Relative Sentiment Tactical is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,979  in Relative Sentiment Tactical on September 12, 2024 and sell it today you would earn a total of  115.50  from holding Relative Sentiment Tactical or generate 3.88% return on investment over 90 days.

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

First Trust Exchange Traded  vs.  Relative Sentiment Tactical

First Trust Exchange

Risk-Adjusted Performance

25 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Relative Sentiment

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Relative Sentiment Tactical are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Relative Sentiment is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Trust and Relative Sentiment

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

The idea behind First Trust Exchange Traded and Relative Sentiment 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.