Correlation Between First Trust and Financial

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

By analyzing existing cross correlation between First Trust Indxx and Financial 15 Split, you can compare the effects of market volatilities on First Trust and Financial 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 Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Financial.

Diversification Opportunities for First Trust and Financial

0.6

Correlation Coefficient

First Trust  Financial

Poor diversification

The 3 months correlation between First and Financial is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Indxx and Financial 15 Split in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial 15 Split 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 Indxx are associated (or correlated) with Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial 15 Split has no effect on the direction of First Trust i.e., First Trust and Financial go up and down completely randomly.

Pair Corralation between First Trust and Financial

Assuming the 90 days trading horizon First Trust is expected to generate 1.14 times less return on investment than Financial. In addition to that, First Trust is 1.37 times more volatile than Financial 15 Split. It trades about 0.16 of its total potential returns per unit of risk. Financial 15 Split is currently generating about 0.25 per unit of volatility. If you would invest  1,024  in Financial 15 Split on August 31, 2024 and sell it today you would earn a total of  41.00  from holding Financial 15 Split or generate 4.0% return on investment over 90 days.

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

First Trust Indxx  vs.  Financial 15 Split

First Trust Indxx

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Indxx are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Financial 15 Split

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Financial 15 Split are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Financial

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

The idea behind First Trust Indxx and Financial 15 Split 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.