Correlation Between FlexShares Disciplined and First Trust
Can any of the company-specific risk be diversified away by investing in both FlexShares Disciplined 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 FlexShares Disciplined and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FlexShares Disciplined Duration and First Trust Developed, you can compare the effects of market volatilities on FlexShares Disciplined 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 FlexShares Disciplined with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares Disciplined and First Trust.
Diversification Opportunities for FlexShares Disciplined and First Trust
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between FlexShares and First is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares Disciplined Duratio and First Trust Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Developed and FlexShares Disciplined 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 FlexShares Disciplined Duration 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 Developed has no effect on the direction of FlexShares Disciplined i.e., FlexShares Disciplined and First Trust go up and down completely randomly.
Pair Corralation between FlexShares Disciplined and First Trust
Given the investment horizon of 90 days FlexShares Disciplined is expected to generate 2.8 times less return on investment than First Trust. But when comparing it to its historical volatility, FlexShares Disciplined Duration is 3.76 times less risky than First Trust. It trades about 0.04 of its potential returns per unit of risk. First Trust Developed is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 3,631 in First Trust Developed on September 3, 2024 and sell it today you would earn a total of 517.00 from holding First Trust Developed or generate 14.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 96.36% |
| Values | Daily Returns |
FlexShares Disciplined Duratio vs. First Trust Developed
Performance |
| Timeline |
| FlexShares Disciplined |
| First Trust Developed |
FlexShares Disciplined and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FlexShares Disciplined and First Trust
The main advantage of trading using opposite FlexShares Disciplined and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares Disciplined 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 FlexShares Disciplined Duration and First Trust Developed 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 Asia | First Trust vs. First Trust United | First Trust vs. First Trust Germany | First Trust vs. First Trust Japan |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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