Correlation Between United States and First Trust

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

By analyzing existing cross correlation between United States 12 and First Trust Natural, you can compare the effects of market volatilities on United States 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 United States with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of United States and First Trust.

Diversification Opportunities for United States and First Trust

0.85

Correlation Coefficient

United States  First Trust

Very poor diversification

The 3 months correlation between United and First is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding United States 12 and First Trust Natural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Natural and United States 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 United States 12 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 Natural has no effect on the direction of United States i.e., United States and First Trust go up and down completely randomly.

Pair Corralation between United States and First Trust

Considering the 90-day investment horizon United States 12 is expected to under-perform the First Trust. In addition to that, United States is 1.02 times more volatile than First Trust Natural. It trades about -0.14 of its total potential returns per unit of risk. First Trust Natural is currently generating about -0.09 per unit of volatility. If you would invest  2,746  in First Trust Natural on March 5, 2024 and sell it today you would lose (66.00) from holding First Trust Natural or give up 2.4% of portfolio value over 90 days.

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

United States 12  vs.  First Trust Natural

United States 12

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in United States 12 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, United States is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

First Trust Natural

Risk-Adjusted Performance

7 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Natural are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, First Trust is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with United States and First Trust

The main advantage of trading using opposite United States and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States 12 and First Trust Natural 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.