Correlation Between First Trust and Managed Account

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

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

Diversification Opportunities for First Trust and Managed Account

0.44

Correlation Coefficient

First Trust  Managed Account

Very weak diversification

The 3 months correlation between First and Managed is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding First Trust NASDAQ and Managed Account Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Managed Account Series 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 NASDAQ are associated (or correlated) with Managed Account. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Managed Account Series has no effect on the direction of First Trust i.e., First Trust and Managed Account go up and down completely randomly.

Pair Corralation between First Trust and Managed Account

Given the investment horizon of 90 days First Trust NASDAQ is expected to generate 9.22 times more return on investment than Managed Account. However, First Trust is 9.22 times more volatile than Managed Account Series. It trades about 0.05 of its potential returns per unit of risk. Managed Account Series is currently generating about -0.02 per unit of risk. If you would invest  3,368  in First Trust NASDAQ on September 5, 2024 and sell it today you would earn a total of  183.00  from holding First Trust NASDAQ or generate 5.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

First Trust NASDAQ  vs.  Managed Account Series

First Trust NASDAQ

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust NASDAQ are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Managed Account Series

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Managed Account Series has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Managed Account is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Managed Account

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

The idea behind First Trust NASDAQ and Managed Account Series 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.