Correlation Between First Trust and PGIM Large

Can any of the company-specific risk be diversified away by investing in both First Trust and PGIM Large 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 Large 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 Large Cap Buffer, you can compare the effects of market volatilities on First Trust and PGIM Large 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 Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and PGIM Large.

Diversification Opportunities for First Trust and PGIM Large

0.95

Correlation Coefficient

First Trust  PGIM Large

Almost no diversification

The 3 months correlation between First and PGIM is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Cboe and PGIM Large Cap Buffer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PGIM Large Cap 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 Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PGIM Large Cap has no effect on the direction of First Trust i.e., First Trust and PGIM Large go up and down completely randomly.

Pair Corralation between First Trust and PGIM Large

Given the investment horizon of 90 days First Trust Cboe is expected to generate 1.43 times more return on investment than PGIM Large. However, First Trust is 1.43 times more volatile than PGIM Large Cap Buffer. It trades about -0.04 of its potential returns per unit of risk. PGIM Large Cap Buffer is currently generating about -0.09 per unit of risk. If you would invest  3,078  in First Trust Cboe on October 5, 2024 and sell it today you would lose (12.00) from holding First Trust Cboe or give up 0.39% of portfolio value over 90 days.

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

First Trust Cboe  vs.  PGIM Large Cap Buffer

First Trust Cboe

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Cboe are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. 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 Large Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PGIM Large Cap Buffer are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, PGIM Large 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 Large

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

The idea behind First Trust Cboe and PGIM Large Cap Buffer 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.