Correlation Between First Trust and Davis Select
Can any of the company-specific risk be diversified away by investing in both First Trust and Davis Select 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 Davis Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Multi and Davis Select Worldwide, you can compare the effects of market volatilities on First Trust and Davis Select 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 Davis Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Davis Select.
Diversification Opportunities for First Trust and Davis Select
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Davis is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Multi and Davis Select Worldwide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Select Worldwide 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 Multi are associated (or correlated) with Davis Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Select Worldwide has no effect on the direction of First Trust i.e., First Trust and Davis Select go up and down completely randomly.
Pair Corralation between First Trust and Davis Select
Considering the 90-day investment horizon First Trust Multi is expected to generate 1.1 times more return on investment than Davis Select. However, First Trust is 1.1 times more volatile than Davis Select Worldwide. It trades about 0.48 of its potential returns per unit of risk. Davis Select Worldwide is currently generating about 0.12 per unit of risk. If you would invest 13,412 in First Trust Multi on September 1, 2024 and sell it today you would earn a total of 1,566 from holding First Trust Multi or generate 11.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Multi vs. Davis Select Worldwide
Performance |
| Timeline |
| First Trust Multi |
| Davis Select Worldwide |
First Trust and Davis Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Davis Select
The main advantage of trading using opposite First Trust and Davis Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Davis Select 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 Davis Select will offset losses from the drop in Davis Select's long position.The idea behind First Trust Multi and Davis Select Worldwide 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.| Davis Select vs. Davis Select Financial | Davis Select vs. Davis Select International | Davis Select vs. First Trust Multi | Davis Select vs. First Trust Dorsey |
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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