Correlation Between First Trust and Rocky Mountain
Can any of the company-specific risk be diversified away by investing in both First Trust and Rocky Mountain 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 Rocky Mountain 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 Rocky Mountain Liquor, you can compare the effects of market volatilities on First Trust and Rocky Mountain 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 Rocky Mountain. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Rocky Mountain.
Diversification Opportunities for First Trust and Rocky Mountain
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between First and Rocky is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Indxx and Rocky Mountain Liquor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocky Mountain Liquor 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 Rocky Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rocky Mountain Liquor has no effect on the direction of First Trust i.e., First Trust and Rocky Mountain go up and down completely randomly.
Pair Corralation between First Trust and Rocky Mountain
Assuming the 90 days trading horizon First Trust is expected to generate 2.43 times less return on investment than Rocky Mountain. But when comparing it to its historical volatility, First Trust Indxx is 10.5 times less risky than Rocky Mountain. It trades about 0.16 of its potential returns per unit of risk. Rocky Mountain Liquor is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 12.00 in Rocky Mountain Liquor on September 2, 2024 and sell it today you would earn a total of 1.00 from holding Rocky Mountain Liquor or generate 8.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.21% |
| Values | Daily Returns |
First Trust Indxx vs. Rocky Mountain Liquor
Performance |
| Timeline |
| First Trust Indxx |
| Rocky Mountain Liquor |
First Trust and Rocky Mountain Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Rocky Mountain
The main advantage of trading using opposite First Trust and Rocky Mountain positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Rocky Mountain 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 Rocky Mountain will offset losses from the drop in Rocky Mountain'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 |
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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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