Can any of the company-specific risk be diversified away by investing in both Collaborative Investment 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 Collaborative Investment and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Collaborative Investment Series and First Trust Multi Asset, you can compare the effects of market volatilities on Collaborative Investment 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 Collaborative Investment with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Collaborative Investment and First Trust.
Diversification Opportunities for Collaborative Investment and First Trust
The 3 months correlation between Collaborative and First is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Collaborative Investment Serie and First Trust Multi-Asset in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Multi-Asset and Collaborative Investment 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 Collaborative Investment Series 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 Multi-Asset has no effect on the direction of Collaborative Investment i.e., Collaborative Investment and First Trust go up and down completely randomly.
Pair Corralation between Collaborative Investment and First Trust
Given the investment horizon of 90 days Collaborative Investment is expected to generate 6.98 times less return on investment than First Trust. But when comparing it to its historical volatility, Collaborative Investment Series is 3.8 times less risky than First Trust. It trades about 0.02 of its potential returns per unit of risk. First Trust Multi Asset is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,433 in First Trust Multi Asset on September 7, 2023 and sell it today you would earn a total of 94.00 from holding First Trust Multi Asset or generate 6.56% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Collaborative Investment Series are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Collaborative Investment is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.
Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Multi Asset are ranked lower than 9 (%) 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 current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
Collaborative Investment and First Trust Volatility Contrast
Predicted Return Density
Pair Trading with Collaborative Investment and First Trust
The main advantage of trading using opposite Collaborative Investment and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Collaborative Investment 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 Collaborative Investment Series and First Trust Multi Asset 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 Stocks Directory module to find actively traded stocks across global markets.
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