Correlation Between First Trust and New Perspective
Can any of the company-specific risk be diversified away by investing in both First Trust and New Perspective 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 New Perspective 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 New Perspective Fund, you can compare the effects of market volatilities on First Trust and New Perspective 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 New Perspective. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and New Perspective.
Diversification Opportunities for First Trust and New Perspective
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and New is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Specialty and New Perspective Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Perspective 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 New Perspective. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Perspective has no effect on the direction of First Trust i.e., First Trust and New Perspective go up and down completely randomly.
Pair Corralation between First Trust and New Perspective
Considering the 90-day investment horizon First Trust Specialty is expected to generate 1.33 times more return on investment than New Perspective. However, First Trust is 1.33 times more volatile than New Perspective Fund. It trades about 0.14 of its potential returns per unit of risk. New Perspective Fund is currently generating about 0.1 per unit of risk. If you would invest 287.00 in First Trust Specialty on September 1, 2024 and sell it today you would earn a total of 141.00 from holding First Trust Specialty or generate 49.13% 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. New Perspective Fund
Performance |
| Timeline |
| First Trust Specialty |
| New Perspective |
First Trust and New Perspective Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and New Perspective
The main advantage of trading using opposite First Trust and New Perspective positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, New Perspective 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 New Perspective will offset losses from the drop in New Perspective'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 |
| New Perspective vs. Blackrock Inflation Protected | New Perspective vs. Ab Bond Inflation | New Perspective vs. Oklahoma College Savings | New Perspective vs. Asg Managed Futures |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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