Correlation Between Burney Factor and First Trust

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

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

Diversification Opportunities for Burney Factor and First Trust

0.96

Correlation Coefficient

Burney Factor  First Trust

Almost no diversification

The 3 months correlation between Burney and First is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Burney Factor Rotation and First Trust Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Growth and Burney Factor 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 Burney Factor Rotation 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 Growth has no effect on the direction of Burney Factor i.e., Burney Factor and First Trust go up and down completely randomly.

Pair Corralation between Burney Factor and First Trust

Given the investment horizon of 90 days Burney Factor Rotation is expected to generate 1.1 times more return on investment than First Trust. However, Burney Factor is 1.1 times more volatile than First Trust Growth. It trades about -0.03 of its potential returns per unit of risk. First Trust Growth is currently generating about -0.06 per unit of risk. If you would invest  4,170  in Burney Factor Rotation on December 28, 2024 and sell it today you would lose (105.00) from holding Burney Factor Rotation or give up 2.52% of portfolio value over 90 days.

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

Burney Factor Rotation  vs.  First Trust Growth

Burney Factor Rotation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Burney Factor Rotation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Burney Factor is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

First Trust Growth

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Burney Factor and First Trust

The main advantage of trading using opposite Burney Factor and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Burney Factor 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 Burney Factor Rotation and First Trust Growth 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.