Correlation Between Virtus LifeSci and First Trust

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

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

Diversification Opportunities for Virtus LifeSci and First Trust

0.75

Correlation Coefficient

Virtus LifeSci  First Trust

Poor diversification

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

Pair Corralation between Virtus LifeSci and First Trust

Considering the 90-day investment horizon Virtus LifeSci Biotech is expected to generate 1.15 times more return on investment than First Trust. However, Virtus LifeSci is 1.15 times more volatile than First Trust NYSE. It trades about 0.0 of its potential returns per unit of risk. First Trust NYSE is currently generating about 0.0 per unit of risk. If you would invest  6,048  in Virtus LifeSci Biotech on December 27, 2024 and sell it today you would lose (38.00) from holding Virtus LifeSci Biotech or give up 0.63% of portfolio value over 90 days.

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

Virtus LifeSci Biotech  vs.  First Trust NYSE

Virtus LifeSci Biotech

Risk-Adjusted Performance

Very Weak

Over the last 90 days Virtus LifeSci Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Virtus LifeSci is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

First Trust NYSE

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust NYSE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, First Trust is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Virtus LifeSci and First Trust

The main advantage of trading using opposite Virtus LifeSci and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Virtus LifeSci 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 Virtus LifeSci Biotech and First Trust NYSE 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.