Correlation Between First Trust and Schwab Fundamental
Can any of the company-specific risk be diversified away by investing in both First Trust and Schwab Fundamental 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 Fundamental into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Active and Schwab Fundamental Large, you can compare the effects of market volatilities on First Trust and Schwab Fundamental 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 Fundamental. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Schwab Fundamental.
Diversification Opportunities for First Trust and Schwab Fundamental
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and Schwab is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Active and Schwab Fundamental Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Fundamental Large 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 Active are associated (or correlated) with Schwab Fundamental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Fundamental Large has no effect on the direction of First Trust i.e., First Trust and Schwab Fundamental go up and down completely randomly.
Pair Corralation between First Trust and Schwab Fundamental
Given the investment horizon of 90 days First Trust Active is expected to generate 1.78 times more return on investment than Schwab Fundamental. However, First Trust is 1.78 times more volatile than Schwab Fundamental Large. It trades about 0.09 of its potential returns per unit of risk. Schwab Fundamental Large is currently generating about 0.16 per unit of risk. If you would invest 2,511 in First Trust Active on September 2, 2024 and sell it today you would earn a total of 775.00 from holding First Trust Active or generate 30.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Active vs. Schwab Fundamental Large
Performance |
| Timeline |
| First Trust Active |
| Schwab Fundamental Large |
First Trust and Schwab Fundamental Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Schwab Fundamental
The main advantage of trading using opposite First Trust and Schwab Fundamental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Schwab Fundamental 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 Fundamental will offset losses from the drop in Schwab Fundamental's long position.| First Trust vs. Schwab Fundamental Large | First Trust vs. Schwab Fundamental International | First Trust vs. Schwab Fundamental International | First Trust vs. Schwab Fundamental Emerging |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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