Correlation Between Principal and First Trust

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

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

Diversification Opportunities for Principal and First Trust

0.37

Correlation Coefficient

Principal  First Trust

Weak diversification

The 3 months correlation between Principal and First is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Principal and First Trust Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Equity and Principal 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 Principal 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 Equity has no effect on the direction of Principal i.e., Principal and First Trust go up and down completely randomly.

Pair Corralation between Principal and First Trust

If you would invest  3,358  in First Trust Equity on August 30, 2024 and sell it today you would earn a total of  128.00  from holding First Trust Equity or generate 3.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	1.59%
Values	Daily Returns

Principal  vs.  First Trust Equity

Principal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Principal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Principal is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

First Trust Equity

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Equity are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Principal and First Trust

The main advantage of trading using opposite Principal and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal 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 Principal and First Trust Equity 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.

Check out your portfolio center.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.