Correlation Between First Trust and American Funds
Can any of the company-specific risk be diversified away by investing in both First Trust and American Funds 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 American Funds 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 American Funds 2015, you can compare the effects of market volatilities on First Trust and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and American Funds.
Diversification Opportunities for First Trust and American Funds
-0.25 | Correlation Coefficient |
Very good diversification
The 3 months correlation between First and American is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Specialty and American Funds 2015 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2015 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds 2015 has no effect on the direction of First Trust i.e., First Trust and American Funds go up and down completely randomly.
Pair Corralation between First Trust and American Funds
Considering the 90-day investment horizon First Trust Specialty is expected to generate 2.58 times more return on investment than American Funds. However, First Trust is 2.58 times more volatile than American Funds 2015. It trades about 0.13 of its potential returns per unit of risk. American Funds 2015 is currently generating about 0.29 per unit of risk. If you would invest 430.00 in First Trust Specialty on November 3, 2024 and sell it today you would earn a total of 11.00 from holding First Trust Specialty or generate 2.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Specialty vs. American Funds 2015
Performance |
| Timeline |
| First Trust Specialty |
| American Funds 2015 |
First Trust and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and American Funds
The main advantage of trading using opposite First Trust and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' 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 |
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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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