Correlation Between First Trust and FAM

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

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

Diversification Opportunities for First Trust and FAM

0.71

Correlation Coefficient

First Trust  FAM

Poor diversification

The 3 months correlation between First and FAM is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Capital and FAM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAM 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 Capital are associated (or correlated) with FAM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAM has no effect on the direction of First Trust i.e., First Trust and FAM go up and down completely randomly.

Pair Corralation between First Trust and FAM

Considering the 90-day investment horizon First Trust is expected to generate 3.57 times less return on investment than FAM. But when comparing it to its historical volatility, First Trust Capital is 1.8 times less risky than FAM. It trades about 0.13 of its potential returns per unit of risk. FAM is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  647.00  in FAM on September 3, 2024 and sell it today you would earn a total of  27.00  from holding FAM or generate 4.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	25.0%
Values	Daily Returns

First Trust Capital  vs.  FAM

First Trust Capital

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Capital are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, First Trust is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

FAM

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days FAM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very uncertain basic indicators, FAM displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and FAM

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

The idea behind First Trust Capital and FAM 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.