Correlation Between CBH and First Trust

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

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

Diversification Opportunities for CBH and First Trust

-0.74

Correlation Coefficient

CBH  First Trust

Pay attention - limited upside

The 3 months correlation between CBH and First is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding CBH and First Trust Intermediate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Intermediate and CBH 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 CBH 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 Intermediate has no effect on the direction of CBH i.e., CBH and First Trust go up and down completely randomly.

Pair Corralation between CBH and First Trust

Considering the 90-day investment horizon CBH is expected to generate 1.39 times less return on investment than First Trust. But when comparing it to its historical volatility, CBH is 1.66 times less risky than First Trust. It trades about 0.06 of its potential returns per unit of risk. First Trust Intermediate is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,460  in First Trust Intermediate on September 26, 2024 and sell it today you would earn a total of  347.00  from holding First Trust Intermediate or generate 23.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	84.07%
Values	Daily Returns

CBH  vs.  First Trust Intermediate

CBH

Risk-Adjusted Performance

0 of 100

Very Weak

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

First Trust Intermediate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Intermediate has generated negative risk-adjusted returns adding no value to fund investors. Despite nearly stable basic indicators, First Trust is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CBH and First Trust

The main advantage of trading using opposite CBH and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CBH 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 CBH and First Trust Intermediate 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.