Correlation Between First Trust and Capital Group
Can any of the company-specific risk be diversified away by investing in both First Trust and Capital Group 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 Capital Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Managed and Capital Group Core, you can compare the effects of market volatilities on First Trust and Capital Group 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 Capital Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Capital Group.
Diversification Opportunities for First Trust and Capital Group
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and Capital is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Managed and Capital Group Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Group Core 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 Managed are associated (or correlated) with Capital Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Group Core has no effect on the direction of First Trust i.e., First Trust and Capital Group go up and down completely randomly.
Pair Corralation between First Trust and Capital Group
Considering the 90-day investment horizon First Trust Managed is expected to generate 1.12 times more return on investment than Capital Group. However, First Trust is 1.12 times more volatile than Capital Group Core. It trades about 0.13 of its potential returns per unit of risk. Capital Group Core is currently generating about 0.09 per unit of risk. If you would invest 5,113 in First Trust Managed on August 30, 2024 and sell it today you would earn a total of 53.00 from holding First Trust Managed or generate 1.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Managed vs. Capital Group Core
Performance |
| Timeline |
| First Trust Managed |
| Capital Group Core |
First Trust and Capital Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Capital Group
The main advantage of trading using opposite First Trust and Capital Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Capital Group 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 Capital Group will offset losses from the drop in Capital Group's long position.| First Trust vs. First Trust Low | First Trust vs. First Trust Enhanced | First Trust vs. First Trust Senior | First Trust vs. First Trust TCW |
| Capital Group vs. Capital Group Dividend | Capital Group vs. Capital Group Core | Capital Group vs. Capital Group Growth | Capital Group vs. Capital Group Global |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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