Correlation Between HP and First Trust
Can any of the company-specific risk be diversified away by investing in both HP and First Trust 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 HP and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HP Inc and First Trust Enhanced, you can compare the effects of market volatilities on HP and First Trust 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 HP with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and First Trust.
Diversification Opportunities for HP and First Trust
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between HP and First is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc and First Trust Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Enhanced and HP 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 HP Inc are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Enhanced has no effect on the direction of HP i.e., HP and First Trust go up and down completely randomly.
Pair Corralation between HP and First Trust
Considering the 90-day investment horizon HP Inc is expected to generate 53.03 times more return on investment than First Trust. However, HP is 53.03 times more volatile than First Trust Enhanced. It trades about 0.04 of its potential returns per unit of risk. First Trust Enhanced is currently generating about 0.61 per unit of risk. If you would invest 2,764 in HP Inc on August 23, 2024 and sell it today you would earn a total of 904.00 from holding HP Inc or generate 32.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
HP Inc vs. First Trust Enhanced
Performance |
| Timeline |
| HP Inc |
| First Trust Enhanced |
HP and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HP and First Trust
The main advantage of trading using opposite HP and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HP position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.The idea behind HP Inc and First Trust Enhanced pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| First Trust vs. First Trust Low | First Trust vs. First Trust Senior | First Trust vs. First Trust TCW | First Trust vs. First Trust Tactical |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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