Correlation Between UBS and First Trust

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

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

Diversification Opportunities for UBS and First Trust

0.75

Correlation Coefficient

UBS  First Trust

Poor diversification

The 3 months correlation between UBS and First is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding UBS and First Trust North in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust North and UBS 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 UBS 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 North has no effect on the direction of UBS i.e., UBS and First Trust go up and down completely randomly.

Pair Corralation between UBS and First Trust

Given the investment horizon of 90 days UBS is expected to generate 2.55 times less return on investment than First Trust. In addition to that, UBS is 1.2 times more volatile than First Trust North. It trades about 0.03 of its total potential returns per unit of risk. First Trust North is currently generating about 0.11 per unit of volatility. If you would invest  2,515  in First Trust North on September 17, 2024 and sell it today you would earn a total of  1,096  from holding First Trust North or generate 43.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	22.59%
Values	Daily Returns

UBS  vs.  First Trust North

UBS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UBS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, UBS is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

First Trust North

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust North are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak essential indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with UBS and First Trust

The main advantage of trading using opposite UBS and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UBS 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 UBS and First Trust North 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.