Correlation Between First Trust and NuShares Enhanced

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

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

Diversification Opportunities for First Trust and NuShares Enhanced

0.98

Correlation Coefficient

First Trust  NuShares Enhanced

Almost no diversification

The 3 months correlation between First and NuShares is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding First Trust High and NuShares Enhanced Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NuShares Enhanced Yield 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 High are associated (or correlated) with NuShares Enhanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NuShares Enhanced Yield has no effect on the direction of First Trust i.e., First Trust and NuShares Enhanced go up and down completely randomly.

Pair Corralation between First Trust and NuShares Enhanced

Given the investment horizon of 90 days First Trust is expected to generate 1.76 times less return on investment than NuShares Enhanced. But when comparing it to its historical volatility, First Trust High is 1.08 times less risky than NuShares Enhanced. It trades about 0.08 of its potential returns per unit of risk. NuShares Enhanced Yield is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,089  in NuShares Enhanced Yield on September 5, 2024 and sell it today you would earn a total of  20.00  from holding NuShares Enhanced Yield or generate 0.96% 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 High  vs.  NuShares Enhanced Yield

First Trust High

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust High has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, First Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

NuShares Enhanced Yield

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NuShares Enhanced Yield has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, NuShares Enhanced is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with First Trust and NuShares Enhanced

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

The idea behind First Trust High and NuShares Enhanced Yield 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.