Correlation Between WBI Power and First Trust

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

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

Diversification Opportunities for WBI Power and First Trust

0.93

Correlation Coefficient

WBI Power  First Trust

Almost no diversification

The 3 months correlation between WBI and First is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding WBI Power Factor and First Trust Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Mid and WBI Power 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 WBI Power Factor 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 Mid has no effect on the direction of WBI Power i.e., WBI Power and First Trust go up and down completely randomly.

Pair Corralation between WBI Power and First Trust

Given the investment horizon of 90 days WBI Power Factor is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, WBI Power Factor is 1.16 times less risky than First Trust. The etf trades about -0.04 of its potential returns per unit of risk. The First Trust Mid is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  5,621  in First Trust Mid on September 13, 2024 and sell it today you would lose (9.00) from holding First Trust Mid or give up 0.16% of portfolio value over 90 days.

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

WBI Power Factor  vs.  First Trust Mid

WBI Power Factor

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WBI Power Factor are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, WBI Power is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Trust Mid

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Mid are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with WBI Power and First Trust

The main advantage of trading using opposite WBI Power and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WBI Power 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 WBI Power Factor and First Trust Mid 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.