Correlation Between US Global and First Trust

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Can any of the company-specific risk be diversified away by investing in both US Global 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 US Global and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between US Global Sea and First Trust Preferred, you can compare the effects of market volatilities on US Global 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 US Global with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Global and First Trust.

Diversification Opportunities for US Global and First Trust

-0.52
  Correlation Coefficient

Excellent diversification

The 3 months correlation between SEA and First is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding US Global Sea and First Trust Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Preferred and US Global 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 US Global Sea 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 Preferred has no effect on the direction of US Global i.e., US Global and First Trust go up and down completely randomly.

Pair Corralation between US Global and First Trust

Considering the 90-day investment horizon US Global Sea is expected to under-perform the First Trust. In addition to that, US Global is 3.25 times more volatile than First Trust Preferred. It trades about -0.03 of its total potential returns per unit of risk. First Trust Preferred is currently generating about 0.31 per unit of volatility. If you would invest  1,706  in First Trust Preferred on December 29, 2023 and sell it today you would earn a total of  26.00  from holding First Trust Preferred or generate 1.52% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

US Global Sea  vs.  First Trust Preferred

 Performance 
       Timeline  
US Global Sea 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days US Global Sea has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, US Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
First Trust Preferred 

Risk-Adjusted Performance

20 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Preferred are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

US Global and First Trust Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with US Global and First Trust

The main advantage of trading using opposite US Global and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Global 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 US Global Sea and First Trust Preferred 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.

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