diversifiable risk of combining First Trust and Dimensional ETF into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Multi Manager and Dimensional ETF Trust, you can compare the effects of market volatilities on First Trust and Dimensional ETF 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 Dimensional ETF. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Dimensional ETF.
Diversification Opportunities for First Trust and Dimensional ETF
Pair Corralation between First Trust and Dimensional ETF
Given the investment horizon of 90 days First Trust Multi Manager is expected to generate 1.9 times more return on investment than Dimensional ETF. However, First Trust is 1.9 times more volatile than Dimensional ETF Trust. It trades about 0.24 of its potential returns per unit of risk. Dimensional ETF Trust is currently generating about 0.02 per unit of risk. If you would invest 1,754 in First Trust Multi Manager on November 30, 2023 and sell it today you would earn a total of 130.00 from holding First Trust Multi Manager or generate 7.41% return on investment over 90 days.
First Trust Multi-Manager vs. Dimensional ETF Trust
First Trust and Dimensional ETF Volatility Contrast
Pair Trading with First Trust and Dimensional ETFThe main advantage of trading using opposite First Trust and Dimensional ETF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Dimensional ETF 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 Dimensional ETF will offset losses from the drop in Dimensional ETF's long position. The idea behind First Trust Multi Manager and Dimensional ETF Trust 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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