Correlation Between First Trust and US Treasury
Can any of the company-specific risk be diversified away by investing in both First Trust and US Treasury 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 US Treasury into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Senior and US Treasury 6, you can compare the effects of market volatilities on First Trust and US Treasury 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 US Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and US Treasury.
Diversification Opportunities for First Trust and US Treasury
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and XBIL is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Senior and US Treasury 6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Treasury 6 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 Senior are associated (or correlated) with US Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Treasury 6 has no effect on the direction of First Trust i.e., First Trust and US Treasury go up and down completely randomly.
Pair Corralation between First Trust and US Treasury
Given the investment horizon of 90 days First Trust Senior is expected to generate 7.07 times more return on investment than US Treasury. However, First Trust is 7.07 times more volatile than US Treasury 6. It trades about 0.17 of its potential returns per unit of risk. US Treasury 6 is currently generating about 0.64 per unit of risk. If you would invest 4,601 in First Trust Senior on August 28, 2024 and sell it today you would earn a total of 28.00 from holding First Trust Senior or generate 0.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Senior vs. US Treasury 6
Performance |
| Timeline |
| First Trust Senior |
| US Treasury 6 |
First Trust and US Treasury Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and US Treasury
The main advantage of trading using opposite First Trust and US Treasury positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, US Treasury 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 US Treasury will offset losses from the drop in US Treasury's long position.| First Trust vs. First Trust Tactical | First Trust vs. First Trust Low | First Trust vs. First Trust Enhanced | First Trust vs. First Trust Managed |
| US Treasury vs. Rbb Fund | US Treasury vs. US Treasury 12 | US Treasury vs. Rbb Fund | US Treasury vs. Rbb Fund |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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