Correlation Between NYSE Composite and First Trust
Can any of the company-specific risk be diversified away by investing in both NYSE Composite 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 NYSE Composite and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NYSE Composite and First Trust Preferred, you can compare the effects of market volatilities on NYSE Composite 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 NYSE Composite with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and First Trust.
Diversification Opportunities for NYSE Composite and First Trust
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between NYSE and First is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and First Trust Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Preferred and NYSE Composite 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 NYSE Composite 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 Preferred has no effect on the direction of NYSE Composite i.e., NYSE Composite and First Trust go up and down completely randomly.
Pair Corralation between NYSE Composite and First Trust
Assuming the 90 days trading horizon NYSE Composite is expected to generate 3.87 times more return on investment than First Trust. However, NYSE Composite is 3.87 times more volatile than First Trust Preferred. It trades about 0.18 of its potential returns per unit of risk. First Trust Preferred is currently generating about -0.08 per unit of risk. If you would invest 1,938,768 in NYSE Composite on September 3, 2024 and sell it today you would earn a total of 88,436 from holding NYSE Composite or generate 4.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NYSE Composite vs. First Trust Preferred
Performance |
| Timeline |
NYSE Composite and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
NYSE Composite
Pair trading matchups for NYSE Composite
First Trust Preferred
Pair trading matchups for First Trust
Pair Trading with NYSE Composite and First Trust
The main advantage of trading using opposite NYSE Composite and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite 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.| NYSE Composite vs. Lindblad Expeditions Holdings | NYSE Composite vs. LB Foster | NYSE Composite vs. HUTCHMED DRC | NYSE Composite vs. Bridgford Foods |
| First Trust vs. Nasdaq 100 2x Strategy | First Trust vs. The Emerging Markets | First Trust vs. T Rowe Price | First Trust vs. Shelton Emerging Markets |
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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