Correlation Between First Trust and Schwab Long

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

By analyzing existing cross correlation between First Trust Long and Schwab Long Term Treasury, you can compare the effects of market volatilities on First Trust and Schwab Long 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 Schwab Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Schwab Long.

Diversification Opportunities for First Trust and Schwab Long

0.77

Correlation Coefficient

First Trust  Schwab Long

Poor diversification

The 3 months correlation between First and Schwab is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Long and Schwab Long Term Treasury in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Long Term 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 Long are associated (or correlated) with Schwab Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Long Term has no effect on the direction of First Trust i.e., First Trust and Schwab Long go up and down completely randomly.

Pair Corralation between First Trust and Schwab Long

Given the investment horizon of 90 days First Trust Long is expected to generate 0.79 times more return on investment than Schwab Long. However, First Trust Long is 1.26 times less risky than Schwab Long. It trades about -0.34 of its potential returns per unit of risk. Schwab Long Term Treasury is currently generating about -0.29 per unit of risk. If you would invest  2,129  in First Trust Long on January 26, 2024 and sell it today you would lose (99.00) from holding First Trust Long or give up 4.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

First Trust Long  vs.  Schwab Long Term Treasury

First Trust Long

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Long has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, First Trust is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Schwab Long Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab Long Term Treasury has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical indicators, Schwab Long is not utilizing all of its potentials. The new stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with First Trust and Schwab Long

The main advantage of trading using opposite First Trust and Schwab Long positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Schwab Long 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 Schwab Long will offset losses from the drop in Schwab Long's long position.

The idea behind First Trust Long and Schwab Long Term Treasury 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.