Correlation Between First Trust and VanEck Investment
Can any of the company-specific risk be diversified away by investing in both First Trust and VanEck Investment 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 VanEck Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Enhanced and VanEck Investment Grade, you can compare the effects of market volatilities on First Trust and VanEck Investment 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 VanEck Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and VanEck Investment.
Diversification Opportunities for First Trust and VanEck Investment
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between First and VanEck is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Enhanced and VanEck Investment Grade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Investment Grade 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 Enhanced are associated (or correlated) with VanEck Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Investment Grade has no effect on the direction of First Trust i.e., First Trust and VanEck Investment go up and down completely randomly.
Pair Corralation between First Trust and VanEck Investment
Given the investment horizon of 90 days First Trust Enhanced is expected to generate 1.41 times more return on investment than VanEck Investment. However, First Trust is 1.41 times more volatile than VanEck Investment Grade. It trades about 0.45 of its potential returns per unit of risk. VanEck Investment Grade is currently generating about 0.29 per unit of risk. If you would invest 5,958 in First Trust Enhanced on November 5, 2024 and sell it today you would earn a total of 41.00 from holding First Trust Enhanced or generate 0.69% 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 Enhanced vs. VanEck Investment Grade
Performance |
| Timeline |
| First Trust Enhanced |
| VanEck Investment Grade |
First Trust and VanEck Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and VanEck Investment
The main advantage of trading using opposite First Trust and VanEck Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, VanEck Investment 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 VanEck Investment will offset losses from the drop in VanEck Investment's long position.| First Trust vs. First Trust Low | First Trust vs. First Trust Senior | First Trust vs. First Trust TCW | First Trust vs. First Trust Tactical |
| VanEck Investment vs. SPDR Bloomberg Investment | VanEck Investment vs. iShares Floating Rate | VanEck Investment vs. SPDR Barclays Long | VanEck Investment vs. Invesco Variable 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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