Correlation Between First Trust and Motley Fool
Can any of the company-specific risk be diversified away by investing in both First Trust and Motley Fool 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 Motley Fool into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust NASDAQ 100 and Motley Fool Next, you can compare the effects of market volatilities on First Trust and Motley Fool 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 Motley Fool. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Motley Fool.
Diversification Opportunities for First Trust and Motley Fool
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Motley is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding First Trust NASDAQ 100 and Motley Fool Next in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Motley Fool Next 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 NASDAQ 100 are associated (or correlated) with Motley Fool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Motley Fool Next has no effect on the direction of First Trust i.e., First Trust and Motley Fool go up and down completely randomly.
Pair Corralation between First Trust and Motley Fool
Given the investment horizon of 90 days First Trust is expected to generate 2.47 times less return on investment than Motley Fool. But when comparing it to its historical volatility, First Trust NASDAQ 100 is 1.1 times less risky than Motley Fool. It trades about 0.02 of its potential returns per unit of risk. Motley Fool Next is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,724 in Motley Fool Next on December 5, 2024 and sell it today you would earn a total of 187.00 from holding Motley Fool Next or generate 10.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust NASDAQ 100 vs. Motley Fool Next
Performance |
| Timeline |
| First Trust NASDAQ |
| Motley Fool Next |
First Trust and Motley Fool Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Motley Fool
The main advantage of trading using opposite First Trust and Motley Fool positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Motley Fool 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 Motley Fool will offset losses from the drop in Motley Fool's long position.| First Trust vs. First Trust NASDAQ 100 | ||
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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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