Correlation Between First Trust and European Residential
Can any of the company-specific risk be diversified away by investing in both First Trust and European Residential 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 European Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Indxx and European Residential Real, you can compare the effects of market volatilities on First Trust and European Residential 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 European Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and European Residential.
Diversification Opportunities for First Trust and European Residential
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and European is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Indxx and European Residential Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Residential Real 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 Indxx are associated (or correlated) with European Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Residential Real has no effect on the direction of First Trust i.e., First Trust and European Residential go up and down completely randomly.
Pair Corralation between First Trust and European Residential
Assuming the 90 days trading horizon First Trust is expected to generate 1.08 times less return on investment than European Residential. But when comparing it to its historical volatility, First Trust Indxx is 2.76 times less risky than European Residential. It trades about 0.11 of its potential returns per unit of risk. European Residential Real is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 282.00 in European Residential Real on September 3, 2024 and sell it today you would earn a total of 98.00 from holding European Residential Real or generate 34.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
First Trust Indxx vs. European Residential Real
Performance |
| Timeline |
| First Trust Indxx |
| European Residential Real |
First Trust and European Residential Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and European Residential
The main advantage of trading using opposite First Trust and European Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, European Residential 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 European Residential will offset losses from the drop in European Residential's long position.| First Trust vs. International Zeolite Corp | First Trust vs. European Residential Real | First Trust vs. Financial 15 Split | First Trust vs. Rubicon Organics |
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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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