Correlation Between First Trust and First Trust

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

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

Diversification Opportunities for First Trust and First Trust

0.9

Correlation Coefficient

First Trust  First Trust

Almost no diversification

The 3 months correlation between First and First is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Utilities and First Trust Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Consumer 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 Utilities are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Consumer has no effect on the direction of First Trust i.e., First Trust and First Trust go up and down completely randomly.

Pair Corralation between First Trust and First Trust

Considering the 90-day investment horizon First Trust is expected to generate 1.15 times less return on investment than First Trust. But when comparing it to its historical volatility, First Trust Utilities is 1.03 times less risky than First Trust. It trades about 0.38 of its potential returns per unit of risk. First Trust Consumer is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  6,246  in First Trust Consumer on September 4, 2024 and sell it today you would earn a total of  566.00  from holding First Trust Consumer or generate 9.06% 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 Utilities  vs.  First Trust Consumer

First Trust Utilities

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Utilities are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Trust Consumer

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Consumer are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Trust and First Trust

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

The idea behind First Trust Utilities and First Trust Consumer 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.