Correlation Between First Trust and PGIM Laddered

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

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

Diversification Opportunities for First Trust and PGIM Laddered

0.99

Correlation Coefficient

First Trust  PGIM Laddered

No risk reduction

The 3 months correlation between First and PGIM is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Cboe and PGIM Laddered in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PGIM Laddered and First Trust 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 First Trust Cboe are associated (or correlated) with PGIM Laddered. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PGIM Laddered has no effect on the direction of First Trust i.e., First Trust and PGIM Laddered go up and down completely randomly.

Pair Corralation between First Trust and PGIM Laddered

Given the investment horizon of 90 days First Trust Cboe is expected to under-perform the PGIM Laddered. In addition to that, First Trust is 1.02 times more volatile than PGIM Laddered. It trades about -0.05 of its total potential returns per unit of risk. PGIM Laddered is currently generating about -0.04 per unit of volatility. If you would invest  2,688  in PGIM Laddered on December 27, 2024 and sell it today you would lose (44.19) from holding PGIM Laddered or give up 1.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

First Trust Cboe  vs.  PGIM Laddered

First Trust Cboe

Risk-Adjusted Performance

Very Weak

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

PGIM Laddered

Risk-Adjusted Performance

Very Weak

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

Pair Trading with First Trust and PGIM Laddered

The main advantage of trading using opposite First Trust and PGIM Laddered positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, PGIM Laddered 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 PGIM Laddered will offset losses from the drop in PGIM Laddered's long position.

The idea behind First Trust Cboe and PGIM Laddered 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.