Correlation Between European Equity and First Trust
Can any of the company-specific risk be diversified away by investing in both European Equity 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 European Equity and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between European Equity Closed and First Trust Intermediate, you can compare the effects of market volatilities on European Equity 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 European Equity with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Equity and First Trust.
Diversification Opportunities for European Equity and First Trust
0.19 | Correlation Coefficient |
Average diversification
The 3 months correlation between European and First is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding European Equity Closed and First Trust Intermediate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Intermediate and European Equity 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 European Equity Closed 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 Intermediate has no effect on the direction of European Equity i.e., European Equity and First Trust go up and down completely randomly.
Pair Corralation between European Equity and First Trust
Considering the 90-day investment horizon European Equity is expected to generate 2.5 times less return on investment than First Trust. But when comparing it to its historical volatility, European Equity Closed is 1.03 times less risky than First Trust. It trades about 0.02 of its potential returns per unit of risk. First Trust Intermediate is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,447 in First Trust Intermediate on August 30, 2024 and sell it today you would earn a total of 433.00 from holding First Trust Intermediate or generate 29.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
European Equity Closed vs. First Trust Intermediate
Performance |
| Timeline |
| European Equity Closed |
| First Trust Intermediate |
European Equity and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with European Equity and First Trust
The main advantage of trading using opposite European Equity and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if European Equity 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.| European Equity vs. XAI Octagon Floating | European Equity vs. MFS Charter Income | European Equity vs. Nuveen New York | European Equity vs. Invesco High Income |
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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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