Correlation Between First Trust and BNY Mellon

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

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

Diversification Opportunities for First Trust and BNY Mellon

0.5

Correlation Coefficient

First Trust  BNY Mellon

Very weak diversification

The 3 months correlation between First and BNY is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Senior and BNY Mellon High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BNY Mellon High 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 Senior are associated (or correlated) with BNY Mellon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BNY Mellon High has no effect on the direction of First Trust i.e., First Trust and BNY Mellon go up and down completely randomly.

Pair Corralation between First Trust and BNY Mellon

Considering the 90-day investment horizon First Trust is expected to generate 1.16 times less return on investment than BNY Mellon. But when comparing it to its historical volatility, First Trust Senior is 1.36 times less risky than BNY Mellon. It trades about 0.11 of its potential returns per unit of risk. BNY Mellon High is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  181.00  in BNY Mellon High on December 1, 2024 and sell it today you would earn a total of  79.00  from holding BNY Mellon High or generate 43.65% return on investment over 90 days.

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

First Trust Senior  vs.  BNY Mellon High

First Trust Senior

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Senior are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental 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.

BNY Mellon High

Risk-Adjusted Performance

Very Weak

Over the last 90 days BNY Mellon High has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, BNY Mellon is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with First Trust and BNY Mellon

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

The idea behind First Trust Senior and BNY Mellon High 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.