Correlation Between BNY Mellon and First Trust

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

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

Diversification Opportunities for BNY Mellon and First Trust

-0.53

Correlation Coefficient

BNY Mellon  First Trust

Excellent diversification

The 3 months correlation between BNY and First is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding BNY Mellon ETF and First Trust S Network in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust S and BNY Mellon 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 BNY Mellon 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 S has no effect on the direction of BNY Mellon i.e., BNY Mellon and First Trust go up and down completely randomly.

Pair Corralation between BNY Mellon and First Trust

Given the investment horizon of 90 days BNY Mellon ETF is expected to generate 0.85 times more return on investment than First Trust. However, BNY Mellon ETF is 1.17 times less risky than First Trust. It trades about 0.19 of its potential returns per unit of risk. First Trust S Network is currently generating about 0.03 per unit of risk. If you would invest  4,828  in BNY Mellon ETF on October 27, 2024 and sell it today you would earn a total of  134.00  from holding BNY Mellon ETF or generate 2.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

BNY Mellon ETF  vs.  First Trust S Network

BNY Mellon ETF

Risk-Adjusted Performance

0 of 100

Very Weak

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

First Trust S

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust S Network are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with BNY Mellon and First Trust

The main advantage of trading using opposite BNY Mellon and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BNY Mellon 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 BNY Mellon ETF and First Trust S Network 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.