Correlation Between Brompton European and First Trust

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

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

Diversification Opportunities for Brompton European and First Trust

-0.83

Correlation Coefficient

Brompton European  First Trust

Pay attention - limited upside

The 3 months correlation between Brompton and First is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Brompton European Dividend and First Trust Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Nasdaq and Brompton European 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 Brompton European Dividend are associated (or correlated) with First Trust. 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 Nasdaq has no effect on the direction of Brompton European i.e., Brompton European and First Trust go up and down completely randomly.

Pair Corralation between Brompton European and First Trust

Assuming the 90 days trading horizon Brompton European Dividend is expected to generate 0.58 times more return on investment than First Trust. However, Brompton European Dividend is 1.72 times less risky than First Trust. It trades about 0.11 of its potential returns per unit of risk. First Trust Nasdaq is currently generating about -0.12 per unit of risk. If you would invest  1,031  in Brompton European Dividend on December 29, 2024 and sell it today you would earn a total of  74.00  from holding Brompton European Dividend or generate 7.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Brompton European Dividend  vs.  First Trust Nasdaq

Brompton European

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brompton European Dividend are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Brompton European may actually be approaching a critical reversion point that can send shares even higher in April 2025.

First Trust Nasdaq

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Nasdaq has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Etf's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the ETF investors.

Pair Trading with Brompton European and First Trust

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

The idea behind Brompton European Dividend and First Trust Nasdaq 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.