Correlation Between Freedom Day and First Trust

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

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

Diversification Opportunities for Freedom Day and First Trust

0.33

Correlation Coefficient

Freedom Day  First Trust

Weak diversification

The 3 months correlation between Freedom and First is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Freedom Day Dividend and First Trust NASDAQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NASDAQ and Freedom Day 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 Freedom Day Dividend 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 NASDAQ has no effect on the direction of Freedom Day i.e., Freedom Day and First Trust go up and down completely randomly.

Pair Corralation between Freedom Day and First Trust

Given the investment horizon of 90 days Freedom Day Dividend is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, Freedom Day Dividend is 2.19 times less risky than First Trust. The etf trades about -0.06 of its potential returns per unit of risk. The First Trust NASDAQ is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  3,521  in First Trust NASDAQ on September 23, 2024 and sell it today you would lose (53.00) from holding First Trust NASDAQ or give up 1.51% of portfolio value over 90 days.

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

Freedom Day Dividend  vs.  First Trust NASDAQ

Freedom Day Dividend

Risk-Adjusted Performance

0 of 100

Very Weak

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

First Trust NASDAQ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust NASDAQ has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, First Trust is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Freedom Day and First Trust

The main advantage of trading using opposite Freedom Day and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freedom Day 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 Freedom Day Dividend and First Trust NASDAQ 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.