Correlation Between FT Vest and FT Cboe

Can any of the company-specific risk be diversified away by investing in both FT Vest and FT Cboe 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 FT Cboe 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 FT Cboe Vest, you can compare the effects of market volatilities on FT Vest and FT Cboe 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 FT Cboe. Check out your portfolio center. Please also check ongoing floating volatility patterns of FT Vest and FT Cboe.

Diversification Opportunities for FT Vest and FT Cboe

0.55

Correlation Coefficient

FT Vest  FT Cboe

Very weak diversification

The 3 months correlation between DHDG and XISE is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding FT Vest Equity and FT Cboe Vest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FT Cboe Vest 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 FT Cboe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FT Cboe Vest has no effect on the direction of FT Vest i.e., FT Vest and FT Cboe go up and down completely randomly.

Pair Corralation between FT Vest and FT Cboe

Given the investment horizon of 90 days FT Vest Equity is expected to under-perform the FT Cboe. In addition to that, FT Vest is 2.22 times more volatile than FT Cboe Vest. It trades about -0.19 of its total potential returns per unit of risk. FT Cboe Vest is currently generating about -0.05 per unit of volatility. If you would invest  3,009  in FT Cboe Vest on December 5, 2024 and sell it today you would lose (6.00) from holding FT Cboe Vest or give up 0.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

FT Vest Equity  vs.  FT Cboe Vest

FT Vest Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days FT Vest Equity has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

FT Cboe Vest

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FT Cboe Vest are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, FT Cboe is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with FT Vest and FT Cboe

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

The idea behind FT Vest Equity and FT Cboe Vest 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.