Correlation Between FAM and First Trust

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

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

Diversification Opportunities for FAM and First Trust

0.66

Correlation Coefficient

FAM  First Trust

Poor diversification

The 3 months correlation between FAM and First is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding FAM and First Trust Mlp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Mlp and FAM 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 FAM 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 Mlp has no effect on the direction of FAM i.e., FAM and First Trust go up and down completely randomly.

Pair Corralation between FAM and First Trust

If you would invest  647.00  in FAM on September 12, 2024 and sell it today you would earn a total of  27.00  from holding FAM or generate 4.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	11.11%
Values	Daily Returns

FAM  vs.  First Trust Mlp

FAM

Risk-Adjusted Performance

0 of 100

Strong

Over the last 90 days FAM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very weak basic indicators, FAM displayed solid returns over the last few months and may actually be approaching a breakup point.

First Trust Mlp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Mlp has generated negative risk-adjusted returns adding no value to fund investors. Despite fairly strong technical and fundamental indicators, First Trust is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with FAM and First Trust

The main advantage of trading using opposite FAM and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FAM 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 FAM and First Trust Mlp 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.