Correlation Between First Trust and Rand Capital

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

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

Diversification Opportunities for First Trust and Rand Capital

0.27

Correlation Coefficient

First Trust  Rand Capital

Modest diversification

The 3 months correlation between First and Rand is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Senior and Rand Capital Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rand Capital Corp 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 Senior are associated (or correlated) with Rand Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rand Capital Corp has no effect on the direction of First Trust i.e., First Trust and Rand Capital go up and down completely randomly.

Pair Corralation between First Trust and Rand Capital

Considering the 90-day investment horizon First Trust is expected to generate 7.56 times less return on investment than Rand Capital. But when comparing it to its historical volatility, First Trust Senior is 5.3 times less risky than Rand Capital. It trades about 0.1 of its potential returns per unit of risk. Rand Capital Corp is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,660  in Rand Capital Corp on September 12, 2024 and sell it today you would earn a total of  425.00  from holding Rand Capital Corp or generate 25.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

First Trust Senior  vs.  Rand Capital Corp

First Trust Senior

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Senior are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, First Trust is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Rand Capital Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rand Capital Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Rand Capital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and Rand Capital

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

The idea behind First Trust Senior and Rand Capital Corp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.