Correlation Between First American and Pear Tree
Can any of the company-specific risk be diversified away by investing in both First American and Pear Tree 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 American and Pear Tree into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First American Funds and Pear Tree Polaris, you can compare the effects of market volatilities on First American and Pear Tree 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 American with a short position of Pear Tree. Check out your portfolio center. Please also check ongoing floating volatility patterns of First American and Pear Tree.
Diversification Opportunities for First American and Pear Tree
-0.25 | Correlation Coefficient |
Very good diversification
The 3 months correlation between First and Pear is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding First American Funds and Pear Tree Polaris in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pear Tree Polaris and First American 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 American Funds are associated (or correlated) with Pear Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pear Tree Polaris has no effect on the direction of First American i.e., First American and Pear Tree go up and down completely randomly.
Pair Corralation between First American and Pear Tree
Assuming the 90 days horizon First American Funds is expected to generate 0.21 times more return on investment than Pear Tree. However, First American Funds is 4.86 times less risky than Pear Tree. It trades about 0.13 of its potential returns per unit of risk. Pear Tree Polaris is currently generating about -0.03 per unit of risk. If you would invest 99.00 in First American Funds on September 12, 2024 and sell it today you would earn a total of 1.00 from holding First American Funds or generate 1.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.44% |
| Values | Daily Returns |
First American Funds vs. Pear Tree Polaris
Performance |
| Timeline |
| First American Funds |
| Pear Tree Polaris |
First American and Pear Tree Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First American and Pear Tree
The main advantage of trading using opposite First American and Pear Tree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First American position performs unexpectedly, Pear Tree 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 Pear Tree will offset losses from the drop in Pear Tree's long position.| First American vs. Siit Ultra Short | First American vs. Quantitative Longshort Equity | First American vs. Rbc Short Duration | First American vs. Franklin Federal Limited Term |
| Pear Tree vs. Ab Global Risk | Pear Tree vs. Ab High Income | Pear Tree vs. Western Asset High | Pear Tree vs. Morningstar Aggressive Growth |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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