Correlation Between First Trust and Columbia
Can any of the company-specific risk be diversified away by investing in both First Trust and Columbia 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 Columbia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Emerging and Columbia EM Core, you can compare the effects of market volatilities on First Trust and Columbia 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 Columbia. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Columbia.
Diversification Opportunities for First Trust and Columbia
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Columbia is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Emerging and Columbia EM Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia EM Core 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 Emerging are associated (or correlated) with Columbia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia EM Core has no effect on the direction of First Trust i.e., First Trust and Columbia go up and down completely randomly.
Pair Corralation between First Trust and Columbia
Considering the 90-day investment horizon First Trust Emerging is expected to generate 1.54 times more return on investment than Columbia. However, First Trust is 1.54 times more volatile than Columbia EM Core. It trades about -0.03 of its potential returns per unit of risk. Columbia EM Core is currently generating about -0.13 per unit of risk. If you would invest 2,265 in First Trust Emerging on September 1, 2024 and sell it today you would lose (20.00) from holding First Trust Emerging or give up 0.88% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
First Trust Emerging vs. Columbia EM Core
Performance |
| Timeline |
| First Trust Emerging |
| Columbia EM Core |
First Trust and Columbia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Columbia
The main advantage of trading using opposite First Trust and Columbia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Columbia 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 Columbia will offset losses from the drop in Columbia's long position.| First Trust vs. First Trust Developed | First Trust vs. First Trust Emerging | First Trust vs. First Trust Europe | First Trust vs. First Trust Large |
| Columbia vs. Xtrackers MSCI Emerging | Columbia vs. FlexShares Morningstar Emerging | Columbia vs. First Trust Emerging |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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