Correlation Between Cambria Emerging and First Trust

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

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

Diversification Opportunities for Cambria Emerging and First Trust

0.83

Correlation Coefficient

Cambria Emerging  First Trust

Very poor diversification

The 3 months correlation between Cambria and First is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Cambria Emerging Shareholder and First Trust Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Developed and Cambria Emerging 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 Cambria Emerging Shareholder 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 Developed has no effect on the direction of Cambria Emerging i.e., Cambria Emerging and First Trust go up and down completely randomly.

Pair Corralation between Cambria Emerging and First Trust

Given the investment horizon of 90 days Cambria Emerging Shareholder is expected to generate about the same return on investment as First Trust Developed. However, Cambria Emerging is 1.08 times more volatile than First Trust Developed. It trades about 0.07 of its potential returns per unit of risk. First Trust Developed is currently producing about 0.08 per unit of risk. If you would invest  4,034  in First Trust Developed on September 16, 2024 and sell it today you would earn a total of  58.00  from holding First Trust Developed or generate 1.44% return on investment over 90 days.

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

Cambria Emerging Shareholder  vs.  First Trust Developed

Cambria Emerging Sha

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cambria Emerging Shareholder has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Cambria Emerging is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

First Trust Developed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Developed has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, First Trust 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 Cambria Emerging and First Trust

The main advantage of trading using opposite Cambria Emerging and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cambria Emerging 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 Cambria Emerging Shareholder and First Trust Developed 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..