Correlation Between First Trust and Sparta Capital

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

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

Diversification Opportunities for First Trust and Sparta Capital

0.6

Correlation Coefficient

First Trust  Sparta Capital

Poor diversification

The 3 months correlation between First and Sparta is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Developed and Sparta Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparta Capital 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 Developed are associated (or correlated) with Sparta Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparta Capital has no effect on the direction of First Trust i.e., First Trust and Sparta Capital go up and down completely randomly.

Pair Corralation between First Trust and Sparta Capital

Given the investment horizon of 90 days First Trust Developed is expected to generate 0.36 times more return on investment than Sparta Capital. However, First Trust Developed is 2.77 times less risky than Sparta Capital. It trades about -0.01 of its potential returns per unit of risk. Sparta Capital is currently generating about -0.12 per unit of risk. If you would invest  4,178  in First Trust Developed on September 3, 2024 and sell it today you would lose (30.00) from holding First Trust Developed or give up 0.72% of portfolio value over 90 days.

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

First Trust Developed  vs.  Sparta Capital

First Trust Developed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Developed has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic 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.

Sparta Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sparta Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with First Trust and Sparta Capital

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

The idea behind First Trust Developed and Sparta Capital 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.