Correlation Between China Fund and First Trust

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

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

Diversification Opportunities for China Fund and First Trust

-0.2

Correlation Coefficient

China Fund  First Trust

Good diversification

The 3 months correlation between China and First is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding China Fund and First Trust Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Mortgage and China Fund 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 China Fund 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 Mortgage has no effect on the direction of China Fund i.e., China Fund and First Trust go up and down completely randomly.

Pair Corralation between China Fund and First Trust

Considering the 90-day investment horizon China Fund is expected to generate 3.84 times more return on investment than First Trust. However, China Fund is 3.84 times more volatile than First Trust Mortgage. It trades about 0.15 of its potential returns per unit of risk. First Trust Mortgage is currently generating about -0.02 per unit of risk. If you would invest  954.00  in China Fund on September 14, 2024 and sell it today you would earn a total of  294.00  from holding China Fund or generate 30.82% return on investment over 90 days.

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

China Fund  vs.  First Trust Mortgage

China Fund

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of very fragile technical indicators, China Fund displayed solid returns over the last few months and may actually be approaching a breakup point.

First Trust Mortgage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Mortgage has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, First Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Fund and First Trust

The main advantage of trading using opposite China Fund and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Fund 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 China Fund and First Trust Mortgage 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.