Correlation Between First Trust and Schwab Municipal
Can any of the company-specific risk be diversified away by investing in both First Trust and Schwab Municipal 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 Schwab Municipal 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 Schwab Municipal Bond, you can compare the effects of market volatilities on First Trust and Schwab Municipal 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 Schwab Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Schwab Municipal.
Diversification Opportunities for First Trust and Schwab Municipal
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and Schwab is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Managed and Schwab Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Municipal Bond 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 Schwab Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Municipal Bond has no effect on the direction of First Trust i.e., First Trust and Schwab Municipal go up and down completely randomly.
Pair Corralation between First Trust and Schwab Municipal
Considering the 90-day investment horizon First Trust is expected to generate 1.29 times less return on investment than Schwab Municipal. But when comparing it to its historical volatility, First Trust Managed is 1.1 times less risky than Schwab Municipal. It trades about 0.09 of its potential returns per unit of risk. Schwab Municipal Bond is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 2,573 in Schwab Municipal Bond on August 29, 2024 and sell it today you would earn a total of 24.00 from holding Schwab Municipal Bond or generate 0.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Managed vs. Schwab Municipal Bond
Performance |
| Timeline |
| First Trust Managed |
| Schwab Municipal Bond |
First Trust and Schwab Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Schwab Municipal
The main advantage of trading using opposite First Trust and Schwab Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Schwab Municipal 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 Schwab Municipal will offset losses from the drop in Schwab Municipal'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 |
| Schwab Municipal vs. Vanguard Tax Exempt Bond | Schwab Municipal vs. Vanguard Short Term Tax Exempt | Schwab Municipal vs. PIMCO Intermediate Municipal | Schwab Municipal vs. Schwab Long Term Treasury |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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