Correlation Between FT Vest and ISEM

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

By analyzing existing cross correlation between FT Vest Equity and ISEM, you can compare the effects of market volatilities on FT Vest and ISEM 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 FT Vest with a short position of ISEM. Check out your portfolio center. Please also check ongoing floating volatility patterns of FT Vest and ISEM.

Diversification Opportunities for FT Vest and ISEM

-0.54

Correlation Coefficient

FT Vest  ISEM

Excellent diversification

The 3 months correlation between DHDG and ISEM is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding FT Vest Equity and ISEM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ISEM and FT Vest 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 FT Vest Equity are associated (or correlated) with ISEM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ISEM has no effect on the direction of FT Vest i.e., FT Vest and ISEM go up and down completely randomly.

Pair Corralation between FT Vest and ISEM

Given the investment horizon of 90 days FT Vest Equity is expected to generate 0.43 times more return on investment than ISEM. However, FT Vest Equity is 2.32 times less risky than ISEM. It trades about 0.05 of its potential returns per unit of risk. ISEM is currently generating about -0.06 per unit of risk. If you would invest  3,038  in FT Vest Equity on October 7, 2024 and sell it today you would earn a total of  38.00  from holding FT Vest Equity or generate 1.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	91.38%
Values	Daily Returns

FT Vest Equity  vs.  ISEM

FT Vest Equity

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FT Vest Equity are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, FT Vest is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

ISEM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ISEM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, ISEM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with FT Vest and ISEM

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

The idea behind FT Vest Equity and ISEM 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.