Correlation Between Principal Spectrum and First Trust
Can any of the company-specific risk be diversified away by investing in both Principal Spectrum 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 Principal Spectrum and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Principal Spectrum Preferred and First Trust Institutional, you can compare the effects of market volatilities on Principal Spectrum 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 Principal Spectrum with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Spectrum and First Trust.
Diversification Opportunities for Principal Spectrum and First Trust
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Principal and First is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Principal Spectrum Preferred and First Trust Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Institutional and Principal Spectrum 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 Principal Spectrum Preferred 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 Institutional has no effect on the direction of Principal Spectrum i.e., Principal Spectrum and First Trust go up and down completely randomly.
Pair Corralation between Principal Spectrum and First Trust
Given the investment horizon of 90 days Principal Spectrum Preferred is expected to generate 0.77 times more return on investment than First Trust. However, Principal Spectrum Preferred is 1.31 times less risky than First Trust. It trades about 0.1 of its potential returns per unit of risk. First Trust Institutional is currently generating about 0.07 per unit of risk. If you would invest 1,567 in Principal Spectrum Preferred on August 29, 2024 and sell it today you would earn a total of 307.00 from holding Principal Spectrum Preferred or generate 19.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Principal Spectrum Preferred vs. First Trust Institutional
Performance |
| Timeline |
| Principal Spectrum |
| First Trust Institutional |
Principal Spectrum and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Principal Spectrum and First Trust
The main advantage of trading using opposite Principal Spectrum and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal Spectrum 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.| Principal Spectrum vs. Managed Account Series | Principal Spectrum vs. Fidelity Sai International | Principal Spectrum vs. Schwab Strategic Trust | Principal Spectrum vs. Prairie Provident Resources |
| First Trust vs. First Trust Preferred | First Trust vs. First Trust Senior | First Trust vs. First Trust Low | First Trust vs. First Trust Enhanced |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
Other Complementary Tools
| Economic Indicators Top statistical indicators that provide insights into how an economy is performing | |
| Equity Analysis Research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities | |
| Commodity Channel Use Commodity Channel Index to analyze current equity momentum | |
| AI Portfolio Architect Use AI to generate optimal portfolios and find profitable investment opportunities | |
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk |