Correlation Between First Trust and Two Roads

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

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

Diversification Opportunities for First Trust and Two Roads

0.96

Correlation Coefficient

First Trust  Two Roads

Almost no diversification

The 3 months correlation between First and Two is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dorsey and Two Roads Shared in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Two Roads Shared 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 Dorsey are associated (or correlated) with Two Roads. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Two Roads Shared has no effect on the direction of First Trust i.e., First Trust and Two Roads go up and down completely randomly.

Pair Corralation between First Trust and Two Roads

Allowing for the 90-day total investment horizon First Trust is expected to generate 1.05 times less return on investment than Two Roads. But when comparing it to its historical volatility, First Trust Dorsey is 1.02 times less risky than Two Roads. It trades about 0.17 of its potential returns per unit of risk. Two Roads Shared is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,245  in Two Roads Shared on September 3, 2024 and sell it today you would earn a total of  412.00  from holding Two Roads Shared or generate 12.7% return on investment over 90 days.

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

First Trust Dorsey  vs.  Two Roads Shared

First Trust Dorsey

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Dorsey are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Two Roads Shared

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Two Roads Shared are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile technical and fundamental indicators, Two Roads may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Trust and Two Roads

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

The idea behind First Trust Dorsey and Two Roads Shared 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.