Correlation Between American Funds and First Trust
Can any of the company-specific risk be diversified away by investing in both American Funds 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 American Funds and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds Fundamental and First Trust California, you can compare the effects of market volatilities on American Funds 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 American Funds with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and First Trust.
Diversification Opportunities for American Funds and First Trust
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and First is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Fundamental and First Trust California in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust California and American Funds 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 American Funds Fundamental 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 California has no effect on the direction of American Funds i.e., American Funds and First Trust go up and down completely randomly.
Pair Corralation between American Funds and First Trust
Assuming the 90 days horizon American Funds Fundamental is expected to generate 3.53 times more return on investment than First Trust. However, American Funds is 3.53 times more volatile than First Trust California. It trades about 0.2 of its potential returns per unit of risk. First Trust California is currently generating about 0.02 per unit of risk. If you would invest 8,096 in American Funds Fundamental on November 3, 2024 and sell it today you would earn a total of 322.00 from holding American Funds Fundamental or generate 3.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Fundamental vs. First Trust California
Performance |
| Timeline |
| American Funds Funda |
| First Trust California |
American Funds and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and First Trust
The main advantage of trading using opposite American Funds and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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.| American Funds vs. Federated Emerging Market | American Funds vs. Siit Emerging Markets | American Funds vs. Mid Cap 15x Strategy | American Funds vs. Ashmore Emerging Markets |
| First Trust vs. First Trust Municipal | First Trust vs. First Trust Emerging | First Trust vs. First Trust Income | First Trust vs. First Trust Managed |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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