Correlation Between VictoryShares and First Trust

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

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

Diversification Opportunities for VictoryShares and First Trust

-0.17

Correlation Coefficient

VictoryShares  First Trust

Good diversification

The 3 months correlation between VictoryShares and First is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding VictoryShares EQ Income and First Trust SMID in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust SMID and VictoryShares 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 VictoryShares EQ Income 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 SMID has no effect on the direction of VictoryShares i.e., VictoryShares and First Trust go up and down completely randomly.

Pair Corralation between VictoryShares and First Trust

Considering the 90-day investment horizon VictoryShares is expected to generate 1.9 times less return on investment than First Trust. But when comparing it to its historical volatility, VictoryShares EQ Income is 1.97 times less risky than First Trust. It trades about 0.06 of its potential returns per unit of risk. First Trust SMID is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,479  in First Trust SMID on December 4, 2024 and sell it today you would earn a total of  897.00  from holding First Trust SMID or generate 36.18% return on investment over 90 days.

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

VictoryShares EQ Income  vs.  First Trust SMID

VictoryShares EQ Income

Risk-Adjusted Performance

Weak

Over the last 90 days VictoryShares EQ Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, VictoryShares is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

First Trust SMID

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust SMID has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Pair Trading with VictoryShares and First Trust

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