Correlation Between First Trust and Dynamic Short

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

By analyzing existing cross correlation between First Trust Alternative and Dynamic Short Short Term, you can compare the effects of market volatilities on First Trust and Dynamic Short 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 Dynamic Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Dynamic Short.

Diversification Opportunities for First Trust and Dynamic Short

0.28

Correlation Coefficient

First Trust  Dynamic Short

Modest diversification

The 3 months correlation between First and Dynamic is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Alternative and Dynamic Short Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynamic Short Short 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 Alternative are associated (or correlated) with Dynamic Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynamic Short Short has no effect on the direction of First Trust i.e., First Trust and Dynamic Short go up and down completely randomly.

Pair Corralation between First Trust and Dynamic Short

Given the investment horizon of 90 days First Trust is expected to generate 3.89 times less return on investment than Dynamic Short. But when comparing it to its historical volatility, First Trust Alternative is 2.13 times less risky than Dynamic Short. It trades about 0.04 of its potential returns per unit of risk. Dynamic Short Short Term is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,635  in Dynamic Short Short Term on September 13, 2024 and sell it today you would earn a total of  129.00  from holding Dynamic Short Short Term or generate 4.9% return on investment over 90 days.

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

First Trust Alternative  vs.  Dynamic Short Short Term

First Trust Alternative

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Alternative are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, First Trust is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Dynamic Short Short

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dynamic Short Short Term are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, Dynamic Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Dynamic Short

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

The idea behind First Trust Alternative and Dynamic Short Short Term 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.