Correlation Between InfraCap MLP and First Trust

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

By analyzing existing cross correlation between InfraCap MLP ETF and First Trust Latin, you can compare the effects of market volatilities on InfraCap MLP 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 InfraCap MLP with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of InfraCap MLP and First Trust.

Diversification Opportunities for InfraCap MLP and First Trust

0.74

Correlation Coefficient

InfraCap MLP  First Trust

Poor diversification

The 3 months correlation between InfraCap and First is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding InfraCap MLP ETF and First Trust Latin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Latin and InfraCap MLP 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 InfraCap MLP ETF 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 Latin has no effect on the direction of InfraCap MLP i.e., InfraCap MLP and First Trust go up and down completely randomly.

Pair Corralation between InfraCap MLP and First Trust

Given the investment horizon of 90 days InfraCap MLP is expected to generate 1.15 times less return on investment than First Trust. In addition to that, InfraCap MLP is 1.15 times more volatile than First Trust Latin. It trades about 0.16 of its total potential returns per unit of risk. First Trust Latin is currently generating about 0.22 per unit of volatility. If you would invest  1,515  in First Trust Latin on December 28, 2024 and sell it today you would earn a total of  249.00  from holding First Trust Latin or generate 16.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

InfraCap MLP ETF  vs.  First Trust Latin

InfraCap MLP ETF

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in InfraCap MLP ETF are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, InfraCap MLP sustained solid returns over the last few months and may actually be approaching a breakup point.

First Trust Latin

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Latin are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, First Trust displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with InfraCap MLP and First Trust

The main advantage of trading using opposite InfraCap MLP and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if InfraCap MLP 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 InfraCap MLP ETF and First Trust Latin 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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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.