Can any of the company-specific risk be diversified away by investing in both FT Cboe and LIFESTYLE 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 FT Cboe and LIFESTYLE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FT Cboe Vest and LIFESTYLE II AGGRESSIVE, you can compare the effects of market volatilities on FT Cboe and LIFESTYLE 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 FT Cboe with a short position of LIFESTYLE. Check out your portfolio center. Please also check ongoing floating volatility patterns of FT Cboe and LIFESTYLE.
Diversification Opportunities for FT Cboe and LIFESTYLE
The 3 months correlation between FSEP and LIFESTYLE is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding FT Cboe Vest and LIFESTYLE II AGGRESSIVE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LIFESTYLE II AGGRESSIVE and FT Cboe 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 FT Cboe Vest are associated (or correlated) with LIFESTYLE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LIFESTYLE II AGGRESSIVE has no effect on the direction of FT Cboe i.e., FT Cboe and LIFESTYLE go up and down completely randomly.
Compared to the overall equity markets, risk-adjusted returns on investments in FT Cboe Vest are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, FT Cboe is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.
Over the last 90 days LIFESTYLE II AGGRESSIVE has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, LIFESTYLE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
The main advantage of trading using opposite FT Cboe and LIFESTYLE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FT Cboe position performs unexpectedly, LIFESTYLE 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 LIFESTYLE will offset losses from the drop in LIFESTYLE's long position.
The idea behind FT Cboe Vest and LIFESTYLE II AGGRESSIVE 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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