Correlation Between VictoryShares 500 and First Trust

Can any of the company-specific risk be diversified away by investing in both VictoryShares 500 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 500 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 500 Volatility and First Trust SMID, you can compare the effects of market volatilities on VictoryShares 500 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 500 with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of VictoryShares 500 and First Trust.

Diversification Opportunities for VictoryShares 500 and First Trust

0.96

Correlation Coefficient

VictoryShares 500  First Trust

Almost no diversification

The 3 months correlation between VictoryShares and First is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding VictoryShares 500 Volatility 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 500 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 500 Volatility 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 500 i.e., VictoryShares 500 and First Trust go up and down completely randomly.

Pair Corralation between VictoryShares 500 and First Trust

Considering the 90-day investment horizon VictoryShares 500 Volatility is expected to generate 0.63 times more return on investment than First Trust. However, VictoryShares 500 Volatility is 1.59 times less risky than First Trust. It trades about -0.02 of its potential returns per unit of risk. First Trust SMID is currently generating about -0.01 per unit of risk. If you would invest  8,815  in VictoryShares 500 Volatility on September 15, 2024 and sell it today you would lose (19.00) from holding VictoryShares 500 Volatility or give up 0.22% of portfolio value over 90 days.

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

VictoryShares 500 Volatility  vs.  First Trust SMID

VictoryShares 500

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VictoryShares 500 Volatility are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, VictoryShares 500 is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

First Trust SMID

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust SMID are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with VictoryShares 500 and First Trust

The main advantage of trading using opposite VictoryShares 500 and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VictoryShares 500 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 500 Volatility 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.