Correlation Between First Trust and Professionally Managed
Can any of the company-specific risk be diversified away by investing in both First Trust and Professionally Managed 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 Professionally Managed into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust SMID and Professionally Managed Portfolios, you can compare the effects of market volatilities on First Trust and Professionally Managed 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 Professionally Managed. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Professionally Managed.
Diversification Opportunities for First Trust and Professionally Managed
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Professionally is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding First Trust SMID and Professionally Managed Portfol in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Professionally Managed 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 SMID are associated (or correlated) with Professionally Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Professionally Managed has no effect on the direction of First Trust i.e., First Trust and Professionally Managed go up and down completely randomly.
Pair Corralation between First Trust and Professionally Managed
Given the investment horizon of 90 days First Trust is expected to generate 1.1 times less return on investment than Professionally Managed. But when comparing it to its historical volatility, First Trust SMID is 1.79 times less risky than Professionally Managed. It trades about 0.18 of its potential returns per unit of risk. Professionally Managed Portfolios is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 2,616 in Professionally Managed Portfolios on October 31, 2024 and sell it today you would earn a total of 73.00 from holding Professionally Managed Portfolios or generate 2.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust SMID vs. Professionally Managed Portfol
Performance |
| Timeline |
| First Trust SMID |
| Professionally Managed |
First Trust and Professionally Managed Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Professionally Managed
The main advantage of trading using opposite First Trust and Professionally Managed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Professionally Managed 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 Professionally Managed will offset losses from the drop in Professionally Managed's long position.| First Trust vs. Matthews China Discovery | First Trust vs. Matthews Emerging Markets | First Trust vs. Morgan Stanley Pathway | First Trust vs. Neuberger Berman ETF |
| Professionally Managed vs. Vanguard Mid Cap Growth | Professionally Managed vs. iShares Russell Mid Cap | Professionally Managed vs. ARK Innovation ETF | Professionally Managed vs. iShares SP Mid Cap |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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