Correlation Between VictoryShares Small and First Trust

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

Diversification Opportunities for VictoryShares Small and First Trust

0.97

Correlation Coefficient

VictoryShares Small  First Trust

Almost no diversification

The 3 months correlation between VictoryShares and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding VictoryShares Small Cap 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 Small 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 Small Cap 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 Small i.e., VictoryShares Small and First Trust go up and down completely randomly.

Pair Corralation between VictoryShares Small and First Trust

Considering the 90-day investment horizon VictoryShares Small Cap is expected to generate 0.81 times more return on investment than First Trust. However, VictoryShares Small Cap is 1.23 times less risky than First Trust. It trades about -0.05 of its potential returns per unit of risk. First Trust SMID is currently generating about -0.08 per unit of risk. If you would invest  5,892  in VictoryShares Small Cap on December 29, 2024 and sell it today you would lose (170.00) from holding VictoryShares Small Cap or give up 2.89% of portfolio value over 90 days.

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

VictoryShares Small Cap  vs.  First Trust SMID

VictoryShares Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days VictoryShares Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, VictoryShares Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 fairly strong basic 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 VictoryShares Small and First Trust

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