Correlation Between First Trust and Western AssetClaymore

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

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

Diversification Opportunities for First Trust and Western AssetClaymore

-0.35

Correlation Coefficient

First Trust  Western AssetClaymore

Very good diversification

The 3 months correlation between First and Western is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Small and Western AssetClaymore Infl in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western AssetClaymore 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 Small are associated (or correlated) with Western AssetClaymore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western AssetClaymore has no effect on the direction of First Trust i.e., First Trust and Western AssetClaymore go up and down completely randomly.

Pair Corralation between First Trust and Western AssetClaymore

Given the investment horizon of 90 days First Trust Small is expected to generate 2.22 times more return on investment than Western AssetClaymore. However, First Trust is 2.22 times more volatile than Western AssetClaymore Infl. It trades about 0.05 of its potential returns per unit of risk. Western AssetClaymore Infl is currently generating about 0.05 per unit of risk. If you would invest  2,508  in First Trust Small on September 14, 2024 and sell it today you would earn a total of  723.00  from holding First Trust Small or generate 28.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.79%
Values	Daily Returns

First Trust Small  vs.  Western AssetClaymore Infl

First Trust Small

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days First Trust Small has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather unsteady basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Western AssetClaymore

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western AssetClaymore Infl are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, Western AssetClaymore is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Western AssetClaymore

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

The idea behind First Trust Small and Western AssetClaymore Infl 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.