Correlation Between First Trust and Western Asset
Can any of the company-specific risk be diversified away by investing in both First Trust and Western Asset 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 Western Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Specialty and Western Asset High, you can compare the effects of market volatilities on First Trust and Western Asset 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 Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Western Asset.
Diversification Opportunities for First Trust and Western Asset
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Western is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Specialty and Western Asset High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset High 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 Specialty are associated (or correlated) with Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset High has no effect on the direction of First Trust i.e., First Trust and Western Asset go up and down completely randomly.
Pair Corralation between First Trust and Western Asset
Considering the 90-day investment horizon First Trust Specialty is expected to generate 0.93 times more return on investment than Western Asset. However, First Trust Specialty is 1.08 times less risky than Western Asset. It trades about 0.24 of its potential returns per unit of risk. Western Asset High is currently generating about 0.08 per unit of risk. If you would invest 403.00 in First Trust Specialty on August 27, 2024 and sell it today you would earn a total of 13.00 from holding First Trust Specialty or generate 3.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Specialty vs. Western Asset High
Performance |
| Timeline |
| First Trust Specialty |
| Western Asset High |
First Trust and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Western Asset
The main advantage of trading using opposite First Trust and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Western Asset 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 Western Asset will offset losses from the drop in Western Asset's long position.| First Trust vs. MFS High Income | First Trust vs. MFS High Yield | First Trust vs. Blackrock Muniholdings Quality | First Trust vs. MFS Government Markets |
| Western Asset vs. Pimco Dynamic Income | Western Asset vs. Pimco Corporate Income | Western Asset vs. Cornerstone Strategic Value | Western Asset vs. Cornerstone Strategic Return |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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