Correlation Between First Trust and USCF SummerHaven

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

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

Diversification Opportunities for First Trust and USCF SummerHaven

0.88

Correlation Coefficient

First Trust  USCF SummerHaven

Very poor diversification

The 3 months correlation between First and USCF is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Global and USCF SummerHaven Dynamic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on USCF SummerHaven Dynamic 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 Global are associated (or correlated) with USCF SummerHaven. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of USCF SummerHaven Dynamic has no effect on the direction of First Trust i.e., First Trust and USCF SummerHaven go up and down completely randomly.

Pair Corralation between First Trust and USCF SummerHaven

Given the investment horizon of 90 days First Trust is expected to generate 1.66 times less return on investment than USCF SummerHaven. But when comparing it to its historical volatility, First Trust Global is 1.06 times less risky than USCF SummerHaven. It trades about 0.1 of its potential returns per unit of risk. USCF SummerHaven Dynamic is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,865  in USCF SummerHaven Dynamic on September 3, 2024 and sell it today you would earn a total of  160.00  from holding USCF SummerHaven Dynamic or generate 8.58% return on investment over 90 days.

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

First Trust Global  vs.  USCF SummerHaven Dynamic

First Trust Global

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Global are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, First Trust is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

USCF SummerHaven Dynamic

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in USCF SummerHaven Dynamic are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady fundamental indicators, USCF SummerHaven may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Trust and USCF SummerHaven

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

The idea behind First Trust Global and USCF SummerHaven Dynamic 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.