Correlation Between Oil Gas and First Trust

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

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

Diversification Opportunities for Oil Gas and First Trust

0.12

Correlation Coefficient

Oil Gas  First Trust

Average diversification

The 3 months correlation between Oil and First is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Oil Gas Ultrasector and First Trust Merger in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Merger and Oil Gas 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 Oil Gas Ultrasector 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 Merger has no effect on the direction of Oil Gas i.e., Oil Gas and First Trust go up and down completely randomly.

Pair Corralation between Oil Gas and First Trust

Assuming the 90 days horizon Oil Gas Ultrasector is expected to under-perform the First Trust. In addition to that, Oil Gas is 1.11 times more volatile than First Trust Merger. It trades about -0.24 of its total potential returns per unit of risk. First Trust Merger is currently generating about -0.21 per unit of volatility. If you would invest  1,105  in First Trust Merger on September 14, 2024 and sell it today you would lose (59.00) from holding First Trust Merger or give up 5.34% of portfolio value over 90 days.

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

Oil Gas Ultrasector  vs.  First Trust Merger

Oil Gas Ultrasector

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Oil Gas Ultrasector are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Oil Gas may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Trust Merger

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Merger has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, First Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Oil Gas and First Trust

The main advantage of trading using opposite Oil Gas and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oil Gas 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 Oil Gas Ultrasector and First Trust Merger 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.