Correlation Between First Trust and Research Affiliates
Can any of the company-specific risk be diversified away by investing in both First Trust and Research Affiliates 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 Research Affiliates into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Dow and Research Affiliates Deletions, you can compare the effects of market volatilities on First Trust and Research Affiliates 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 Research Affiliates. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Research Affiliates.
Diversification Opportunities for First Trust and Research Affiliates
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Research is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dow and Research Affiliates Deletions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Research Affiliates 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 Dow are associated (or correlated) with Research Affiliates. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Research Affiliates has no effect on the direction of First Trust i.e., First Trust and Research Affiliates go up and down completely randomly.
Pair Corralation between First Trust and Research Affiliates
Considering the 90-day investment horizon First Trust Dow is expected to generate 1.28 times more return on investment than Research Affiliates. However, First Trust is 1.28 times more volatile than Research Affiliates Deletions. It trades about 0.15 of its potential returns per unit of risk. Research Affiliates Deletions is currently generating about 0.07 per unit of risk. If you would invest 6,853 in First Trust Dow on November 5, 2024 and sell it today you would earn a total of 244.00 from holding First Trust Dow or generate 3.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Dow vs. Research Affiliates Deletions
Performance |
| Timeline |
| First Trust Dow |
| Research Affiliates |
First Trust and Research Affiliates Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Research Affiliates
The main advantage of trading using opposite First Trust and Research Affiliates positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Research Affiliates 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 Research Affiliates will offset losses from the drop in Research Affiliates' long position.| First Trust vs. iShares Micro Cap ETF | First Trust vs. Invesco SP MidCap | First Trust vs. Invesco SP SmallCap | First Trust vs. First Trust Small |
| Research Affiliates vs. JPMorgan Fundamental Data | Research Affiliates vs. Davis Select International | Research Affiliates vs. Dimensional ETF Trust | Research Affiliates vs. Principal Value ETF |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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