Correlation Between Arrow DWA and First Trust
Can any of the company-specific risk be diversified away by investing in both Arrow DWA 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 Arrow DWA and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Arrow DWA Tactical and First Trust Income, you can compare the effects of market volatilities on Arrow DWA 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 Arrow DWA with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arrow DWA and First Trust.
Diversification Opportunities for Arrow DWA and First Trust
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Arrow and First is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Arrow DWA Tactical and First Trust Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Income and Arrow DWA 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 Arrow DWA Tactical 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 Income has no effect on the direction of Arrow DWA i.e., Arrow DWA and First Trust go up and down completely randomly.
Pair Corralation between Arrow DWA and First Trust
Given the investment horizon of 90 days Arrow DWA Tactical is expected to under-perform the First Trust. In addition to that, Arrow DWA is 1.93 times more volatile than First Trust Income. It trades about -0.06 of its total potential returns per unit of risk. First Trust Income is currently generating about 0.18 per unit of volatility. If you would invest 2,008 in First Trust Income on August 29, 2024 and sell it today you would earn a total of 230.00 from holding First Trust Income or generate 11.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Arrow DWA Tactical vs. First Trust Income
Performance |
| Timeline |
| Arrow DWA Tactical |
| First Trust Income |
Arrow DWA and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Arrow DWA and First Trust
The main advantage of trading using opposite Arrow DWA and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arrow DWA 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.The idea behind Arrow DWA Tactical and First Trust Income 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.| First Trust vs. iShares Core Aggressive | First Trust vs. SPDR SSgA Multi Asset | First Trust vs. SPDR SSgA Global | First Trust vs. Investment Managers Series |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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