Correlation Between First American and Defensive Market

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

By analyzing existing cross correlation between First American Funds and Defensive Market Strategies, you can compare the effects of market volatilities on First American and Defensive Market 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 American with a short position of Defensive Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of First American and Defensive Market.

Diversification Opportunities for First American and Defensive Market

0.7

Correlation Coefficient

First American  Defensive Market

Poor diversification

The 3 months correlation between First and Defensive is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding First American Funds and Defensive Market Strategies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defensive Market Str and First American 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 American Funds are associated (or correlated) with Defensive Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defensive Market Str has no effect on the direction of First American i.e., First American and Defensive Market go up and down completely randomly.

Pair Corralation between First American and Defensive Market

If you would invest  1,251  in Defensive Market Strategies on September 4, 2024 and sell it today you would earn a total of  46.00  from holding Defensive Market Strategies or generate 3.68% return on investment over 90 days.

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

First American Funds  vs.  Defensive Market Strategies

First American Funds

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First American Funds are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, First American is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Defensive Market Str

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Defensive Market Strategies are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Defensive Market is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First American and Defensive Market

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

The idea behind First American Funds and Defensive Market Strategies 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.