Correlation Between First Trust and Parnassus Core

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

Diversification Opportunities for First Trust and Parnassus Core

0.94

Correlation Coefficient

First Trust  Parnassus Core

Almost no diversification

The 3 months correlation between First and Parnassus is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and Parnassus Core Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parnassus Core Select 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 Parnassus Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parnassus Core Select has no effect on the direction of First Trust i.e., First Trust and Parnassus Core go up and down completely randomly.

Pair Corralation between First Trust and Parnassus Core

Given the investment horizon of 90 days First Trust Exchange Traded is expected to generate 0.43 times more return on investment than Parnassus Core. However, First Trust Exchange Traded is 2.3 times less risky than Parnassus Core. It trades about -0.07 of its potential returns per unit of risk. Parnassus Core Select is currently generating about -0.06 per unit of risk. If you would invest  3,896  in First Trust Exchange Traded on December 20, 2024 and sell it today you would lose (73.00) from holding First Trust Exchange Traded or give up 1.87% of portfolio value over 90 days.

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

First Trust Exchange Traded  vs.  Parnassus Core Select

First Trust Exchange

Risk-Adjusted Performance

Very Weak

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

Parnassus Core Select

Risk-Adjusted Performance

Very Weak

Over the last 90 days Parnassus Core Select has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Parnassus Core is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with First Trust and Parnassus Core

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

The idea behind First Trust Exchange Traded and Parnassus Core Select 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.