Correlation Between First Trust and Prudential Government
Can any of the company-specific risk be diversified away by investing in both First Trust and Prudential Government 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 Prudential Government into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Preferred and Prudential Government Income, you can compare the effects of market volatilities on First Trust and Prudential Government 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 Prudential Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Prudential Government.
Diversification Opportunities for First Trust and Prudential Government
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between First and Prudential is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Preferred and Prudential Government Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Government 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 Preferred are associated (or correlated) with Prudential Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Government has no effect on the direction of First Trust i.e., First Trust and Prudential Government go up and down completely randomly.
Pair Corralation between First Trust and Prudential Government
Assuming the 90 days horizon First Trust Preferred is expected to generate 0.56 times more return on investment than Prudential Government. However, First Trust Preferred is 1.79 times less risky than Prudential Government. It trades about 0.25 of its potential returns per unit of risk. Prudential Government Income is currently generating about 0.06 per unit of risk. If you would invest 1,676 in First Trust Preferred on September 12, 2024 and sell it today you would earn a total of 333.00 from holding First Trust Preferred or generate 19.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Preferred vs. Prudential Government Income
Performance |
| Timeline |
| First Trust Preferred |
| Prudential Government |
First Trust and Prudential Government Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Prudential Government
The main advantage of trading using opposite First Trust and Prudential Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Prudential Government 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 Prudential Government will offset losses from the drop in Prudential Government's long position.| First Trust vs. Prudential Government Income | First Trust vs. Goldman Sachs Government | First Trust vs. Sit Government Securities | First Trust vs. Intermediate Government Bond |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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