Correlation Between Touchstone International and First Trust
Can any of the company-specific risk be diversified away by investing in both Touchstone International 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 Touchstone International and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Touchstone International Equity and First Trust Short, you can compare the effects of market volatilities on Touchstone International 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 Touchstone International with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Touchstone International and First Trust.
Diversification Opportunities for Touchstone International and First Trust
-0.47 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Touchstone and First is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Touchstone International Equit and First Trust Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Short and Touchstone International 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 Touchstone International Equity 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 Short has no effect on the direction of Touchstone International i.e., Touchstone International and First Trust go up and down completely randomly.
Pair Corralation between Touchstone International and First Trust
Assuming the 90 days horizon Touchstone International is expected to generate 1.05 times less return on investment than First Trust. In addition to that, Touchstone International is 4.52 times more volatile than First Trust Short. It trades about 0.04 of its total potential returns per unit of risk. First Trust Short is currently generating about 0.17 per unit of volatility. If you would invest 1,556 in First Trust Short on September 14, 2024 and sell it today you would earn a total of 260.00 from holding First Trust Short or generate 16.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Touchstone International Equit vs. First Trust Short
Performance |
| Timeline |
| Touchstone International |
| First Trust Short |
Touchstone International and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Touchstone International and First Trust
The main advantage of trading using opposite Touchstone International and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Touchstone International 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 Touchstone International Equity and First Trust Short 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.
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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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