Correlation Between First Trust and Health Care
Can any of the company-specific risk be diversified away by investing in both First Trust and Health Care 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 Health Care into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Health and Health Care Select, you can compare the effects of market volatilities on First Trust and Health Care 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 Health Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Health Care.
Diversification Opportunities for First Trust and Health Care
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and Health is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Health and Health Care Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Select 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 Health are associated (or correlated) with Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Select has no effect on the direction of First Trust i.e., First Trust and Health Care go up and down completely randomly.
Pair Corralation between First Trust and Health Care
Considering the 90-day investment horizon First Trust is expected to generate 1.04 times less return on investment than Health Care. In addition to that, First Trust is 1.21 times more volatile than Health Care Select. It trades about 0.03 of its total potential returns per unit of risk. Health Care Select is currently generating about 0.04 per unit of volatility. If you would invest 13,877 in Health Care Select on January 26, 2024 and sell it today you would earn a total of 209.00 from holding Health Care Select or generate 1.51% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 98.41% |
Values | Daily Returns |
First Trust Health vs. Health Care Select
Performance |
Timeline |
First Trust Health |
Health Care Select |
First Trust and Health Care Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with First Trust and Health Care
The main advantage of trading using opposite First Trust and Health Care positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Health Care 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 Health Care will offset losses from the drop in Health Care's long position.First Trust vs. First Trust Consumer | First Trust vs. First Trust Consumer | First Trust vs. First Trust Technology | First Trust vs. First Trust Financials |
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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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