Correlation Between First Trust and Arrow DWA

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

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

Diversification Opportunities for First Trust and Arrow DWA

0.06

Correlation Coefficient

First Trust  Arrow DWA

Significant diversification

The 3 months correlation between First and Arrow is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding First Trust RiverFront and Arrow DWA Tactical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow DWA Tactical 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 RiverFront are associated (or correlated) with Arrow DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrow DWA Tactical has no effect on the direction of First Trust i.e., First Trust and Arrow DWA go up and down completely randomly.

Pair Corralation between First Trust and Arrow DWA

Given the investment horizon of 90 days First Trust is expected to generate 13.78 times less return on investment than Arrow DWA. In addition to that, First Trust is 1.21 times more volatile than Arrow DWA Tactical. It trades about 0.01 of its total potential returns per unit of risk. Arrow DWA Tactical is currently generating about 0.15 per unit of volatility. If you would invest  1,109  in Arrow DWA Tactical on September 2, 2024 and sell it today you would earn a total of  89.00  from holding Arrow DWA Tactical or generate 8.03% return on investment over 90 days.

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

First Trust RiverFront  vs.  Arrow DWA Tactical

First Trust RiverFront

Risk-Adjusted Performance

0 of 100

Very Weak

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

Arrow DWA Tactical

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arrow DWA Tactical are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Arrow DWA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Trust and Arrow DWA

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

The idea behind First Trust RiverFront and Arrow DWA Tactical 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.