Correlation Between First Trust and USCF Midstream

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

Diversification Opportunities for First Trust and USCF Midstream

0.76

Correlation Coefficient

First Trust  USCF Midstream

Poor diversification

The 3 months correlation between First and USCF is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding First Trust North and USCF Midstream Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on USCF Midstream Energy 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 USCF Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of USCF Midstream Energy has no effect on the direction of First Trust i.e., First Trust and USCF Midstream go up and down completely randomly.

Pair Corralation between First Trust and USCF Midstream

Given the investment horizon of 90 days First Trust is expected to generate 1.29 times less return on investment than USCF Midstream. But when comparing it to its historical volatility, First Trust North is 1.33 times less risky than USCF Midstream. It trades about 0.1 of its potential returns per unit of risk. USCF Midstream Energy is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4,887  in USCF Midstream Energy on December 27, 2024 and sell it today you would earn a total of  364.00  from holding USCF Midstream Energy or generate 7.45% return on investment over 90 days.

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

First Trust North  vs.  USCF Midstream Energy

First Trust North

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust North are ranked lower than 8 (%) 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.

USCF Midstream Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in USCF Midstream Energy are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting primary indicators, USCF Midstream may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with First Trust and USCF Midstream

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

The idea behind First Trust North and USCF Midstream 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.

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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.