Correlation Between First Trust and DUDE

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

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

Diversification Opportunities for First Trust and DUDE

0.85

Correlation Coefficient

First Trust  DUDE

Very poor diversification

The 3 months correlation between First and DUDE is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and DUDE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DUDE 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 Exchange Traded are associated (or correlated) with DUDE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DUDE has no effect on the direction of First Trust i.e., First Trust and DUDE go up and down completely randomly.

Pair Corralation between First Trust and DUDE

Given the investment horizon of 90 days First Trust Exchange Traded is expected to generate 0.39 times more return on investment than DUDE. However, First Trust Exchange Traded is 2.57 times less risky than DUDE. It trades about 0.15 of its potential returns per unit of risk. DUDE is currently generating about 0.04 per unit of risk. If you would invest  3,062  in First Trust Exchange Traded on September 19, 2024 and sell it today you would earn a total of  956.00  from holding First Trust Exchange Traded or generate 31.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	28.63%
Values	Daily Returns

First Trust Exchange Traded  vs.  DUDE

First Trust Exchange

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

DUDE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DUDE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, DUDE is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Trust and DUDE

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

The idea behind First Trust Exchange Traded and DUDE 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.