Correlation Between American Beacon and First Trust

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

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

Diversification Opportunities for American Beacon and First Trust

-0.32

Correlation Coefficient

American Beacon  First Trust

Very good diversification

The 3 months correlation between American and First is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding American Beacon GLG and First Trust Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Exchange and American Beacon 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 American Beacon GLG 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 Exchange has no effect on the direction of American Beacon i.e., American Beacon and First Trust go up and down completely randomly.

Pair Corralation between American Beacon and First Trust

Given the investment horizon of 90 days American Beacon GLG is expected to generate 0.76 times more return on investment than First Trust. However, American Beacon GLG is 1.31 times less risky than First Trust. It trades about 0.36 of its potential returns per unit of risk. First Trust Exchange Traded is currently generating about -0.34 per unit of risk. If you would invest  2,840  in American Beacon GLG on January 29, 2024 and sell it today you would earn a total of  189.00  from holding American Beacon GLG or generate 6.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

American Beacon GLG  vs.  First Trust Exchange Traded

American Beacon GLG

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon GLG are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, American Beacon reported solid returns over the last few months and may actually be approaching a breakup point.

First Trust Exchange

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Exchange Traded has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with American Beacon and First Trust

The main advantage of trading using opposite American Beacon and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Beacon 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 American Beacon GLG and First Trust Exchange Traded 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.