Correlation Between Desjardins and First Trust

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

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

Diversification Opportunities for Desjardins and First Trust

0.89

Correlation Coefficient

Desjardins  First Trust

Very poor diversification

The 3 months correlation between Desjardins and First is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Desjardins RI USA and First Trust Senior in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Senior and Desjardins 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 Desjardins RI USA 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 Senior has no effect on the direction of Desjardins i.e., Desjardins and First Trust go up and down completely randomly.

Pair Corralation between Desjardins and First Trust

Assuming the 90 days trading horizon Desjardins RI USA is expected to generate 1.11 times more return on investment than First Trust. However, Desjardins is 1.11 times more volatile than First Trust Senior. It trades about 0.32 of its potential returns per unit of risk. First Trust Senior is currently generating about 0.07 per unit of risk. If you would invest  4,030  in Desjardins RI USA on September 13, 2024 and sell it today you would earn a total of  584.00  from holding Desjardins RI USA or generate 14.49% return on investment over 90 days.

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

Desjardins RI USA  vs.  First Trust Senior

Desjardins RI USA

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Desjardins RI USA are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Desjardins displayed solid returns over the last few months and may actually be approaching a breakup point.

First Trust Senior

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Senior are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Desjardins and First Trust

The main advantage of trading using opposite Desjardins and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Desjardins 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 Desjardins RI USA and First Trust Senior 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..