Can any of the company-specific risk be diversified away by investing in both First Trust and Akros Monthly 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 Akros Monthly into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Multi Asset and Akros Monthly Payout, you can compare the effects of market volatilities on First Trust and Akros Monthly 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 Akros Monthly. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Akros Monthly.
Diversification Opportunities for First Trust and Akros Monthly
The 3 months correlation between First and Akros is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Multi-Asset and Akros Monthly Payout in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Akros Monthly Payout 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 Multi Asset are associated (or correlated) with Akros Monthly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Akros Monthly Payout has no effect on the direction of First Trust i.e., First Trust and Akros Monthly go up and down completely randomly.
Pair Corralation between First Trust and Akros Monthly
Given the investment horizon of 90 days First Trust Multi Asset is expected to generate 1.7 times more return on investment than Akros Monthly. However, First Trust is 1.7 times more volatile than Akros Monthly Payout. It trades about 0.34 of its potential returns per unit of risk. Akros Monthly Payout is currently generating about 0.27 per unit of risk. If you would invest 1,412 in First Trust Multi Asset on August 30, 2023 and sell it today you would earn a total of 80.00 from holding First Trust Multi Asset or generate 5.67% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Multi Asset are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable forward indicators, First Trust is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
Over the last 90 days Akros Monthly Payout has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Akros Monthly is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
The main advantage of trading using opposite First Trust and Akros Monthly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Akros Monthly 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 Akros Monthly will offset losses from the drop in Akros Monthly's long position.
The idea behind First Trust Multi Asset and Akros Monthly Payout 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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