Correlation Between First Trust and Nuveen Preferred

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

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

Diversification Opportunities for First Trust and Nuveen Preferred

0.45

Correlation Coefficient

First Trust  Nuveen Preferred

Very weak diversification

The 3 months correlation between First and Nuveen is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding First Trust High and Nuveen Preferred and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen Preferred 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 High are associated (or correlated) with Nuveen Preferred. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen Preferred has no effect on the direction of First Trust i.e., First Trust and Nuveen Preferred go up and down completely randomly.

Pair Corralation between First Trust and Nuveen Preferred

Given the investment horizon of 90 days First Trust is expected to generate 2.78 times less return on investment than Nuveen Preferred. But when comparing it to its historical volatility, First Trust High is 1.36 times less risky than Nuveen Preferred. It trades about 0.08 of its potential returns per unit of risk. Nuveen Preferred and is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,925  in Nuveen Preferred and on September 5, 2024 and sell it today you would earn a total of  134.00  from holding Nuveen Preferred and or generate 6.96% return on investment over 90 days.

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

First Trust High  vs.  Nuveen Preferred and

First Trust High

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust High are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, First Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Nuveen Preferred

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with First Trust and Nuveen Preferred

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

The idea behind First Trust High and Nuveen Preferred and 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.