Correlation Between First Trust and FAM
Can any of the company-specific risk be diversified away by investing in both First Trust and FAM 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 FAM into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust High and FAM, you can compare the effects of market volatilities on First Trust and FAM 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 FAM. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and FAM.
Diversification Opportunities for First Trust and FAM
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and FAM is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding First Trust High and FAM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAM 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 High are associated (or correlated) with FAM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAM has no effect on the direction of First Trust i.e., First Trust and FAM go up and down completely randomly.
Pair Corralation between First Trust and FAM
Considering the 90-day investment horizon First Trust High is expected to generate 0.84 times more return on investment than FAM. However, First Trust High is 1.19 times less risky than FAM. It trades about 0.2 of its potential returns per unit of risk. FAM is currently generating about 0.16 per unit of risk. If you would invest 1,169 in First Trust High on August 28, 2024 and sell it today you would earn a total of 53.00 from holding First Trust High or generate 4.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 44.44% |
| Values | Daily Returns |
First Trust High vs. FAM
Performance |
| Timeline |
| First Trust High |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| FAM |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Solid
First Trust and FAM Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and FAM
The main advantage of trading using opposite First Trust and FAM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, FAM 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 FAM will offset losses from the drop in FAM's long position.| First Trust vs. Franklin Templeton Limited | First Trust vs. Blackrock Floating Rate | First Trust vs. Cohen Steers Limited | First Trust vs. Blackstone Gso Long |
| FAM vs. Blackstone Gso Long | FAM vs. Blackstone Gso Senior | FAM vs. Nuveen Floating Rate | FAM vs. Pioneer Floating Rate |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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