Correlation Between European Equity and First Trust

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

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

Diversification Opportunities for European Equity and First Trust

-0.33

Correlation Coefficient

European Equity  First Trust

Very good diversification

The 3 months correlation between European and First is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding European Equity Closed and First Trust Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Energy and European Equity 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 European Equity Closed 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 Energy has no effect on the direction of European Equity i.e., European Equity and First Trust go up and down completely randomly.

Pair Corralation between European Equity and First Trust

Considering the 90-day investment horizon European Equity is expected to generate 9.71 times less return on investment than First Trust. But when comparing it to its historical volatility, European Equity Closed is 1.4 times less risky than First Trust. It trades about 0.01 of its potential returns per unit of risk. First Trust Energy is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,449  in First Trust Energy on October 13, 2024 and sell it today you would earn a total of  115.00  from holding First Trust Energy or generate 7.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	25.6%
Values	Daily Returns

European Equity Closed  vs.  First Trust Energy

European Equity Closed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days European Equity Closed has generated negative risk-adjusted returns adding no value to fund investors. Despite latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

First Trust Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Energy has generated negative risk-adjusted returns adding no value to fund investors. Despite nearly stable forward indicators, First Trust is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with European Equity and First Trust

The main advantage of trading using opposite European Equity and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if European Equity 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 European Equity Closed and First Trust Energy 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..