Correlation Between Salesforce and First Trust

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

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

Diversification Opportunities for Salesforce and First Trust

0.92

Correlation Coefficient

Salesforce  First Trust

Almost no diversification

The 3 months correlation between Salesforce and First is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and First Trust Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Exchange and Salesforce 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 Salesforce 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 Exchange has no effect on the direction of Salesforce i.e., Salesforce and First Trust go up and down completely randomly.

Pair Corralation between Salesforce and First Trust

Considering the 90-day investment horizon Salesforce is expected to generate 2.81 times more return on investment than First Trust. However, Salesforce is 2.81 times more volatile than First Trust Exchange Traded. It trades about 0.27 of its potential returns per unit of risk. First Trust Exchange Traded is currently generating about 0.21 per unit of risk. If you would invest  24,767  in Salesforce on September 3, 2024 and sell it today you would earn a total of  8,232  from holding Salesforce or generate 33.24% return on investment over 90 days.

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

Salesforce  vs.  First Trust Exchange Traded

Salesforce

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Salesforce are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Salesforce displayed solid returns over the last few months and may actually be approaching a breakup point.

First Trust Exchange

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Salesforce and First Trust

The main advantage of trading using opposite Salesforce and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Salesforce 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 Salesforce and First Trust Exchange Traded 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..