Correlation Between First Trust and HP
Can any of the company-specific risk be diversified away by investing in both First Trust and HP 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 HP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Nasdaq and HP Inc, you can compare the effects of market volatilities on First Trust and HP 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 HP. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and HP.
Diversification Opportunities for First Trust and HP
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and HP is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Nasdaq and HP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HP Inc 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 Nasdaq are associated (or correlated) with HP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HP Inc has no effect on the direction of First Trust i.e., First Trust and HP go up and down completely randomly.
Pair Corralation between First Trust and HP
Given the investment horizon of 90 days First Trust Nasdaq is expected to generate 1.0 times more return on investment than HP. However, First Trust is 1.0 times more volatile than HP Inc. It trades about -0.13 of its potential returns per unit of risk. HP Inc is currently generating about -0.27 per unit of risk. If you would invest 2,675 in First Trust Nasdaq on January 21, 2024 and sell it today you would lose (105.00) from holding First Trust Nasdaq or give up 3.93% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 95.45% |
Values | Daily Returns |
First Trust Nasdaq vs. HP Inc
Performance |
Timeline |
First Trust Nasdaq |
HP Inc |
First Trust and HP Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with First Trust and HP
The main advantage of trading using opposite First Trust and HP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, HP 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 HP will offset losses from the drop in HP's long position.First Trust vs. Energy Select Sector | First Trust vs. Technology Select Sector | First Trust vs. Health Care Select | First Trust vs. Industrial Select Sector |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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