Correlation Between First Trust and Principal
Can any of the company-specific risk be diversified away by investing in both First Trust and Principal 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 Principal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust International and Principal, you can compare the effects of market volatilities on First Trust and Principal 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 Principal. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Principal.
Diversification Opportunities for First Trust and Principal
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between First and Principal is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding First Trust International and Principal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal 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 International are associated (or correlated) with Principal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal has no effect on the direction of First Trust i.e., First Trust and Principal go up and down completely randomly.
Pair Corralation between First Trust and Principal
Given the investment horizon of 90 days First Trust is expected to generate 2.86 times less return on investment than Principal. But when comparing it to its historical volatility, First Trust International is 1.02 times less risky than Principal. It trades about 0.06 of its potential returns per unit of risk. Principal is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 4,168 in Principal on September 2, 2024 and sell it today you would earn a total of 236.00 from holding Principal or generate 5.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 8.06% |
| Values | Daily Returns |
First Trust International vs. Principal
Performance |
| Timeline |
| First Trust International |
| Principal |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
First Trust and Principal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Principal
The main advantage of trading using opposite First Trust and Principal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Principal 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 Principal will offset losses from the drop in Principal's long position.| First Trust vs. First Trust Mid | First Trust vs. First Trust Emerging | First Trust vs. First Trust Emerging | First Trust vs. First Trust SSI |
| Principal vs. The RBB Fund | Principal vs. The RBB Fund | Principal vs. Motley Fool Next | Principal vs. Motley Fool Capital |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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