Correlation Between First Trust and FlexShares Disciplined
Can any of the company-specific risk be diversified away by investing in both First Trust and FlexShares Disciplined 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 FlexShares Disciplined into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Low and FlexShares Disciplined Duration, you can compare the effects of market volatilities on First Trust and FlexShares Disciplined 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 FlexShares Disciplined. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and FlexShares Disciplined.
Diversification Opportunities for First Trust and FlexShares Disciplined
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and FlexShares is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Low and FlexShares Disciplined Duratio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Disciplined 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 Low are associated (or correlated) with FlexShares Disciplined. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Disciplined has no effect on the direction of First Trust i.e., First Trust and FlexShares Disciplined go up and down completely randomly.
Pair Corralation between First Trust and FlexShares Disciplined
Given the investment horizon of 90 days First Trust is expected to generate 3.53 times less return on investment than FlexShares Disciplined. But when comparing it to its historical volatility, First Trust Low is 1.71 times less risky than FlexShares Disciplined. It trades about 0.03 of its potential returns per unit of risk. FlexShares Disciplined Duration is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 2,044 in FlexShares Disciplined Duration on August 29, 2024 and sell it today you would earn a total of 9.00 from holding FlexShares Disciplined Duration or generate 0.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Low vs. FlexShares Disciplined Duratio
Performance |
| Timeline |
| First Trust Low |
| FlexShares Disciplined |
First Trust and FlexShares Disciplined Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and FlexShares Disciplined
The main advantage of trading using opposite First Trust and FlexShares Disciplined positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, FlexShares Disciplined 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 FlexShares Disciplined will offset losses from the drop in FlexShares Disciplined's long position.The idea behind First Trust Low and FlexShares Disciplined Duration 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.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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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