Correlation Between First Trust and Voya Prime

Can any of the company-specific risk be diversified away by investing in both First Trust and Voya Prime 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 Voya Prime 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 Voya Prime Rate, you can compare the effects of market volatilities on First Trust and Voya Prime 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 Voya Prime. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Voya Prime.

Diversification Opportunities for First Trust and Voya Prime

0.87

Correlation Coefficient

First Trust  Voya Prime

Very poor diversification

The 3 months correlation between First and Voya is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Senior and Voya Prime Rate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Voya Prime Rate 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 Voya Prime. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Voya Prime Rate has no effect on the direction of First Trust i.e., First Trust and Voya Prime go up and down completely randomly.

Pair Corralation between First Trust and Voya Prime

Considering the 90-day investment horizon First Trust is expected to generate 1.43 times less return on investment than Voya Prime. But when comparing it to its historical volatility, First Trust Senior is 1.19 times less risky than Voya Prime. It trades about 0.12 of its potential returns per unit of risk. Voya Prime Rate is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  756.00  in Voya Prime Rate on September 24, 2024 and sell it today you would earn a total of  17.00  from holding Voya Prime Rate or generate 2.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

First Trust Senior  vs.  Voya Prime Rate

First Trust Senior

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Senior are ranked lower than 10 (%) 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.

Voya Prime Rate

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Voya Prime Rate are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Voya Prime may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Trust and Voya Prime

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

The idea behind First Trust Senior and Voya Prime Rate 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.