Correlation Between PHN Multi and First Trust

Can any of the company-specific risk be diversified away by investing in both PHN Multi 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 PHN Multi and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PHN Multi Style All Cap and First Trust Nasdaq, you can compare the effects of market volatilities on PHN Multi 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 PHN Multi with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of PHN Multi and First Trust.

Diversification Opportunities for PHN Multi and First Trust

0.62

Correlation Coefficient

PHN Multi  First Trust

Poor diversification

The 3 months correlation between PHN and First is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding PHN Multi Style All Cap and First Trust Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Nasdaq and PHN Multi 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 PHN Multi Style All Cap 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 Nasdaq has no effect on the direction of PHN Multi i.e., PHN Multi and First Trust go up and down completely randomly.

Pair Corralation between PHN Multi and First Trust

Assuming the 90 days trading horizon PHN Multi Style All Cap is expected to generate 0.54 times more return on investment than First Trust. However, PHN Multi Style All Cap is 1.84 times less risky than First Trust. It trades about 0.25 of its potential returns per unit of risk. First Trust Nasdaq is currently generating about 0.1 per unit of risk. If you would invest  2,623  in PHN Multi Style All Cap on September 17, 2024 and sell it today you would earn a total of  299.00  from holding PHN Multi Style All Cap or generate 11.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

PHN Multi Style All Cap  vs.  First Trust Nasdaq

PHN Multi Style

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PHN Multi Style All Cap are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of very unfluctuating basic indicators, PHN Multi may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Trust Nasdaq

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Nasdaq are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with PHN Multi and First Trust

The main advantage of trading using opposite PHN Multi and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PHN Multi 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 PHN Multi Style All Cap and First Trust Nasdaq 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.