Correlation Between First Trust and CoreCommodity Natural

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

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

Diversification Opportunities for First Trust and CoreCommodity Natural

0.86

Correlation Coefficient

First Trust  CoreCommodity Natural

Very poor diversification

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

Pair Corralation between First Trust and CoreCommodity Natural

Considering the 90-day investment horizon First Trust Materials is expected to generate 1.17 times more return on investment than CoreCommodity Natural. However, First Trust is 1.17 times more volatile than CoreCommodity Natural Resources. It trades about 0.07 of its potential returns per unit of risk. CoreCommodity Natural Resources is currently generating about 0.06 per unit of risk. If you would invest  6,297  in First Trust Materials on September 3, 2024 and sell it today you would earn a total of  306.00  from holding First Trust Materials or generate 4.86% return on investment over 90 days.

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

First Trust Materials  vs.  CoreCommodity Natural Resource

First Trust Materials

Risk-Adjusted Performance

5 of 100

Modest

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

CoreCommodity Natural

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CoreCommodity Natural Resources are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, CoreCommodity Natural is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with First Trust and CoreCommodity Natural

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

The idea behind First Trust Materials and CoreCommodity Natural Resources 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.