Correlation Between First Trust and Dimensional International
Can any of the company-specific risk be diversified away by investing in both First Trust and Dimensional International 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 Dimensional International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Exchange Traded and Dimensional International High, you can compare the effects of market volatilities on First Trust and Dimensional International 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 International. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Dimensional International.
Diversification Opportunities for First Trust and Dimensional International
-0.65 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between First and Dimensional is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and Dimensional International High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional International 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 Exchange Traded are associated (or correlated) with Dimensional International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional International has no effect on the direction of First Trust i.e., First Trust and Dimensional International go up and down completely randomly.
Pair Corralation between First Trust and Dimensional International
Given the investment horizon of 90 days First Trust is expected to generate 2.46 times less return on investment than Dimensional International. But when comparing it to its historical volatility, First Trust Exchange Traded is 6.07 times less risky than Dimensional International. It trades about 0.36 of its potential returns per unit of risk. Dimensional International High is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 2,527 in Dimensional International High on October 23, 2024 and sell it today you would earn a total of 33.00 from holding Dimensional International High or generate 1.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Exchange Traded vs. Dimensional International High
Performance |
| Timeline |
| First Trust Exchange |
| Dimensional International |
First Trust and Dimensional International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Dimensional International
The main advantage of trading using opposite First Trust and Dimensional International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Dimensional International 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 International will offset losses from the drop in Dimensional International's long position.| First Trust vs. First Trust Exchange Traded | First Trust vs. First Trust Exchange Traded | First Trust vs. FT Cboe Vest | First Trust vs. FT Cboe Vest |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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