Correlation Between First Trust and Sparta Capital
Can any of the company-specific risk be diversified away by investing in both First Trust and Sparta Capital 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 Sparta Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust LongShort and Sparta Capital, you can compare the effects of market volatilities on First Trust and Sparta Capital 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 Sparta Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Sparta Capital.
Diversification Opportunities for First Trust and Sparta Capital
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between First and Sparta is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding First Trust LongShort and Sparta Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparta Capital 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 LongShort are associated (or correlated) with Sparta Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparta Capital has no effect on the direction of First Trust i.e., First Trust and Sparta Capital go up and down completely randomly.
Pair Corralation between First Trust and Sparta Capital
Given the investment horizon of 90 days First Trust LongShort is expected to generate 0.1 times more return on investment than Sparta Capital. However, First Trust LongShort is 9.92 times less risky than Sparta Capital. It trades about 0.22 of its potential returns per unit of risk. Sparta Capital is currently generating about -0.21 per unit of risk. If you would invest 6,452 in First Trust LongShort on August 29, 2024 and sell it today you would earn a total of 165.00 from holding First Trust LongShort or generate 2.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
First Trust LongShort vs. Sparta Capital
Performance |
| Timeline |
| First Trust LongShort |
| Sparta Capital |
First Trust and Sparta Capital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Sparta Capital
The main advantage of trading using opposite First Trust and Sparta Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Sparta Capital 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 Sparta Capital will offset losses from the drop in Sparta Capital's long position.| First Trust vs. First Trust Managed | First Trust vs. IQ Hedge Multi Strategy | First Trust vs. First Trust BuyWrite | First Trust vs. SPDR SSgA Global |
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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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