Correlation Between First Trust and Financial
Can any of the company-specific risk be diversified away by investing in both First Trust and Financial 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 Financial 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 Financial 15 Split, you can compare the effects of market volatilities on First Trust and Financial 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 Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Financial.
Diversification Opportunities for First Trust and Financial
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Financial is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Indxx and Financial 15 Split in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial 15 Split 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 Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial 15 Split has no effect on the direction of First Trust i.e., First Trust and Financial go up and down completely randomly.
Pair Corralation between First Trust and Financial
Assuming the 90 days trading horizon First Trust Indxx is expected to generate 1.94 times more return on investment than Financial. However, First Trust is 1.94 times more volatile than Financial 15 Split. It trades about 0.16 of its potential returns per unit of risk. Financial 15 Split is currently generating about 0.24 per unit of risk. If you would invest 1,051 in First Trust Indxx on September 2, 2024 and sell it today you would earn a total of 102.00 from holding First Trust Indxx or generate 9.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.21% |
| Values | Daily Returns |
First Trust Indxx vs. Financial 15 Split
Performance |
| Timeline |
| First Trust Indxx |
| Financial 15 Split |
First Trust and Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Financial
The main advantage of trading using opposite First Trust and Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Financial 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 Financial will offset losses from the drop in Financial's long position.| First Trust vs. iShares Canadian HYBrid | First Trust vs. Brompton European Dividend | First Trust vs. Solar Alliance Energy | First Trust vs. PHN Multi Style All Cap |
| Financial vs. North American Financial | Financial vs. Dividend 15 Split | Financial vs. Dividend Growth Split | Financial vs. Dividend 15 Split |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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