Correlation Between First Trust and Roundhill Investments

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

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

Diversification Opportunities for First Trust and Roundhill Investments

0.86

Correlation Coefficient

First Trust  Roundhill Investments

Very poor diversification

The 3 months correlation between First and Roundhill is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Equity and Roundhill Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roundhill Investments 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 Equity are associated (or correlated) with Roundhill Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roundhill Investments has no effect on the direction of First Trust i.e., First Trust and Roundhill Investments go up and down completely randomly.

Pair Corralation between First Trust and Roundhill Investments

If you would invest  10,606  in First Trust Equity on September 16, 2024 and sell it today you would earn a total of  1,858  from holding First Trust Equity or generate 17.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	1.54%
Values	Daily Returns

First Trust Equity  vs.  Roundhill Investments

First Trust Equity

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Equity are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, First Trust showed solid returns over the last few months and may actually be approaching a breakup point.

Roundhill Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Roundhill Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Roundhill Investments is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Trust and Roundhill Investments

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

The idea behind First Trust Equity and Roundhill Investments 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.