Correlation Between First Trust and Bank of America
Can any of the company-specific risk be diversified away by investing in both First Trust and Bank of America 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 Bank of America into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Emerging and Bank of America, you can compare the effects of market volatilities on First Trust and Bank of America 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 Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Bank of America.
Diversification Opportunities for First Trust and Bank of America
-0.05 | Correlation Coefficient |
Good diversification
The 3 months correlation between First and Bank is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Emerging and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America 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 Emerging are associated (or correlated) with Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of First Trust i.e., First Trust and Bank of America go up and down completely randomly.
Pair Corralation between First Trust and Bank of America
Given the investment horizon of 90 days First Trust Emerging is expected to under-perform the Bank of America. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Emerging is 2.42 times less risky than Bank of America. The etf trades about -0.23 of its potential returns per unit of risk. The Bank of America is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 3,709 in Bank of America on January 26, 2024 and sell it today you would earn a total of 123.00 from holding Bank of America or generate 3.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Emerging vs. Bank of America
Performance |
| Timeline |
| First Trust Emerging |
| Bank of America |
First Trust and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Bank of America
The main advantage of trading using opposite First Trust and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.| First Trust vs. First Trust SSI | First Trust vs. First Trust BuyWrite | First Trust vs. First Trust Managed | First Trust vs. First Trust Tactical |
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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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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