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 Small and First Trust Mid, 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

0.93

Correlation Coefficient

First Trust  First Trust

Almost no diversification

The 3 months correlation between First and First is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Small and First Trust Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Mid 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 Small 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 Mid 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 Small is expected to generate 1.16 times more return on investment than First Trust. However, First Trust is 1.16 times more volatile than First Trust Mid. It trades about 0.17 of its potential returns per unit of risk. First Trust Mid is currently generating about 0.11 per unit of risk. If you would invest  7,248  in First Trust Small on September 13, 2024 and sell it today you would earn a total of  976.00  from holding First Trust Small or generate 13.47% 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 Small  vs.  First Trust Mid

First Trust Small

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Small are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, First Trust exhibited solid returns over the last few months and may actually be approaching a breakup point.

First Trust Mid

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Mid are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain 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 Small and First Trust Mid 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.