Correlation Between First Trust and InfraCap MLP

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

By analyzing existing cross correlation between First Trust North and InfraCap MLP ETF, you can compare the effects of market volatilities on First Trust and InfraCap MLP 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 InfraCap MLP. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and InfraCap MLP.

Diversification Opportunities for First Trust and InfraCap MLP

0.94

Correlation Coefficient

First Trust  InfraCap MLP

Almost no diversification

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

Pair Corralation between First Trust and InfraCap MLP

Given the investment horizon of 90 days First Trust is expected to generate 2.71 times less return on investment than InfraCap MLP. But when comparing it to its historical volatility, First Trust North is 1.44 times less risky than InfraCap MLP. It trades about 0.09 of its potential returns per unit of risk. InfraCap MLP ETF is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  4,170  in InfraCap MLP ETF on December 28, 2024 and sell it today you would earn a total of  578.00  from holding InfraCap MLP ETF or generate 13.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

First Trust North  vs.  InfraCap MLP ETF

First Trust North

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust North are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable essential indicators, First Trust is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

InfraCap MLP ETF

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in InfraCap MLP ETF are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, InfraCap MLP sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and InfraCap MLP

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

The idea behind First Trust North and InfraCap MLP ETF 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.