Correlation Between First Trust and Democratic Large
Can any of the company-specific risk be diversified away by investing in both First Trust and Democratic Large 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 Democratic Large into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Dorsey and Democratic Large Cap, you can compare the effects of market volatilities on First Trust and Democratic Large 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 Democratic Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Democratic Large.
Diversification Opportunities for First Trust and Democratic Large
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and Democratic is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dorsey and Democratic Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Democratic Large Cap 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 Dorsey are associated (or correlated) with Democratic Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Democratic Large Cap has no effect on the direction of First Trust i.e., First Trust and Democratic Large go up and down completely randomly.
Pair Corralation between First Trust and Democratic Large
Given the investment horizon of 90 days First Trust Dorsey is expected to generate 1.39 times more return on investment than Democratic Large. However, First Trust is 1.39 times more volatile than Democratic Large Cap. It trades about 0.32 of its potential returns per unit of risk. Democratic Large Cap is currently generating about 0.42 per unit of risk. If you would invest 3,384 in First Trust Dorsey on September 5, 2024 and sell it today you would earn a total of 225.00 from holding First Trust Dorsey or generate 6.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
First Trust Dorsey vs. Democratic Large Cap
Performance |
| Timeline |
| First Trust Dorsey |
| Democratic Large Cap |
First Trust and Democratic Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Democratic Large
The main advantage of trading using opposite First Trust and Democratic Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Democratic Large 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 Democratic Large will offset losses from the drop in Democratic Large's long position.| First Trust vs. Vanguard Total Stock | First Trust vs. SPDR SP 500 | First Trust vs. iShares Core SP | First Trust vs. Vanguard Dividend Appreciation |
| Democratic Large vs. Vanguard Total Stock | Democratic Large vs. SPDR SP 500 | Democratic Large vs. iShares Core SP | Democratic Large vs. Vanguard Dividend Appreciation |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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