Correlation Between FlexShares Real and First Trust

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Can any of the company-specific risk be diversified away by investing in both FlexShares Real 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 FlexShares Real and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FlexShares Real Assets and First Trust RiverFront, you can compare the effects of market volatilities on FlexShares Real 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 FlexShares Real with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares Real and First Trust.

Diversification Opportunities for FlexShares Real and First Trust

FlexSharesFirstDiversified AwayFlexSharesFirstDiversified Away100%
0.72
  Correlation Coefficient

Poor diversification

The 3 months correlation between FlexShares and First is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares Real Assets and First Trust RiverFront in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust RiverFront and FlexShares Real 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 FlexShares Real Assets 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 RiverFront has no effect on the direction of FlexShares Real i.e., FlexShares Real and First Trust go up and down completely randomly.

Pair Corralation between FlexShares Real and First Trust

Given the investment horizon of 90 days FlexShares Real Assets is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, FlexShares Real Assets is 1.47 times less risky than First Trust. The etf trades about -0.12 of its potential returns per unit of risk. The First Trust RiverFront is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  6,404  in First Trust RiverFront on September 17, 2024 and sell it today you would earn a total of  81.10  from holding First Trust RiverFront or generate 1.27% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.24%
ValuesDaily Returns

FlexShares Real Assets  vs.  First Trust RiverFront

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -20246
JavaScript chart by amCharts 3.21.15ASET RFEM
       Timeline  
FlexShares Real Assets 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days FlexShares Real Assets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, FlexShares Real is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec31.53232.5
First Trust RiverFront 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days First Trust RiverFront has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec64656667686970

FlexShares Real and First Trust Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-0.85-0.6-0.35-0.1-0.01470.06960.260.510.761.01 0.20.40.60.81.01.21.4
JavaScript chart by amCharts 3.21.15ASET RFEM
       Returns  

Pair Trading with FlexShares Real and First Trust

The main advantage of trading using opposite FlexShares Real and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares Real 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 FlexShares Real Assets and First Trust RiverFront 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.

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