Correlation Between DSJA and First Trust

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

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

Diversification Opportunities for DSJA and First Trust

0.0

Correlation Coefficient

DSJA  First Trust

Pay attention - limited upside

The 3 months correlation between DSJA and First is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding DSJA and First Trust LongShort in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust LongShort and DSJA 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 DSJA 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 LongShort has no effect on the direction of DSJA i.e., DSJA and First Trust go up and down completely randomly.

Pair Corralation between DSJA and First Trust

Given the investment horizon of 90 days DSJA is expected to generate 5.24 times less return on investment than First Trust. But when comparing it to its historical volatility, DSJA is 18.47 times less risky than First Trust. It trades about 0.49 of its potential returns per unit of risk. First Trust LongShort is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  5,492  in First Trust LongShort on February 28, 2024 and sell it today you would earn a total of  632.00  from holding First Trust LongShort or generate 11.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	25.2%
Values	Daily Returns

DSJA  vs.  First Trust LongShort

DSJA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DSJA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward-looking indicators, DSJA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Trust LongShort

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust LongShort are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, First Trust is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with DSJA and First Trust

The main advantage of trading using opposite DSJA and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DSJA 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 DSJA and First Trust LongShort 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.