Correlation Between SFL and First Trust

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

Diversification Opportunities for SFL and First Trust

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between SFL and First is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding SFL Corp. and First Trust Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Japan and SFL 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 SFL Corporation 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 Japan has no effect on the direction of SFL i.e., SFL and First Trust go up and down completely randomly.

Pair Corralation between SFL and First Trust

Considering the 90-day investment horizon SFL is expected to generate 14.78 times less return on investment than First Trust. But when comparing it to its historical volatility, SFL Corporation is 1.07 times less risky than First Trust. It trades about 0.02 of its potential returns per unit of risk. First Trust Japan is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  5,270  in First Trust Japan on December 29, 2023 and sell it today you would earn a total of  260.00  from holding First Trust Japan or generate 4.93% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

SFL Corp.  vs.  First Trust Japan

 Performance 
       Timeline  
SFL Corporation 

Risk-Adjusted Performance

16 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in SFL Corporation are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, SFL disclosed solid returns over the last few months and may actually be approaching a breakup point.
First Trust Japan 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Japan are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain forward-looking indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in April 2024.

SFL and First Trust Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SFL and First Trust

The main advantage of trading using opposite SFL and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SFL 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 SFL Corporation and First Trust Japan 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..

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