Correlation Between ARK Genomic and First Trust

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

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

Diversification Opportunities for ARK Genomic and First Trust

0.75

Correlation Coefficient

ARK Genomic  First Trust

Poor diversification

The 3 months correlation between ARK and First is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding ARK Genomic Revolution and First Trust Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Health and ARK Genomic 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 ARK Genomic Revolution 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 Health has no effect on the direction of ARK Genomic i.e., ARK Genomic and First Trust go up and down completely randomly.

Pair Corralation between ARK Genomic and First Trust

Given the investment horizon of 90 days ARK Genomic Revolution is expected to under-perform the First Trust. In addition to that, ARK Genomic is 3.63 times more volatile than First Trust Health. It trades about -0.01 of its total potential returns per unit of risk. First Trust Health is currently generating about -0.01 per unit of volatility. If you would invest  10,601  in First Trust Health on December 26, 2024 and sell it today you would lose (104.00) from holding First Trust Health or give up 0.98% of portfolio value over 90 days.

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

ARK Genomic Revolution  vs.  First Trust Health

ARK Genomic Revolution

Risk-Adjusted Performance

Very Weak

Over the last 90 days ARK Genomic Revolution has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking signals, ARK Genomic is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

First Trust Health

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, First Trust is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with ARK Genomic and First Trust

The main advantage of trading using opposite ARK Genomic and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARK Genomic 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 ARK Genomic Revolution and First Trust Health 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.