Correlation Between First Trust and First Trust/confluence

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

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

Diversification Opportunities for First Trust and First Trust/confluence

0.67

Correlation Coefficient

First Trust  First Trust/confluence

Poor diversification

The 3 months correlation between First and First is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Managed and First Trustconfluence Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust/confluence and First Trust 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 First Trust Managed are associated (or correlated) with First Trust/confluence. 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/confluence has no effect on the direction of First Trust i.e., First Trust and First Trust/confluence go up and down completely randomly.

Pair Corralation between First Trust and First Trust/confluence

Assuming the 90 days horizon First Trust Managed is expected to generate 0.18 times more return on investment than First Trust/confluence. However, First Trust Managed is 5.48 times less risky than First Trust/confluence. It trades about 0.16 of its potential returns per unit of risk. First Trustconfluence Small is currently generating about -0.2 per unit of risk. If you would invest  2,041  in First Trust Managed on December 4, 2024 and sell it today you would earn a total of  12.00  from holding First Trust Managed or generate 0.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

First Trust Managed  vs.  First Trustconfluence Small

First Trust Managed

Risk-Adjusted Performance

Very Weak

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

First Trust/confluence

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trustconfluence Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental 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 fund investors.

Pair Trading with First Trust and First Trust/confluence

The main advantage of trading using opposite First Trust and First Trust/confluence positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, First Trust/confluence 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/confluence will offset losses from the drop in First Trust/confluence's long position.

The idea behind First Trust Managed and First Trustconfluence Small 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.