Correlation Between First Trust and Eaton Vance

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

Diversification Opportunities for First Trust and Eaton Vance

0.8

Correlation Coefficient

First Trust  Eaton Vance

Very poor diversification

The 3 months correlation between First and Eaton is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Senior and Eaton Vance Tax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton Vance Tax 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 Eaton Vance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eaton Vance Tax has no effect on the direction of First Trust i.e., First Trust and Eaton Vance go up and down completely randomly.

Pair Corralation between First Trust and Eaton Vance

Considering the 90-day investment horizon First Trust is expected to generate 2.94 times less return on investment than Eaton Vance. But when comparing it to its historical volatility, First Trust Senior is 1.39 times less risky than Eaton Vance. It trades about 0.1 of its potential returns per unit of risk. Eaton Vance Tax is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,389  in Eaton Vance Tax on September 12, 2024 and sell it today you would earn a total of  131.00  from holding Eaton Vance Tax or generate 9.43% return on investment over 90 days.

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

First Trust Senior  vs.  Eaton Vance Tax

First Trust Senior

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Senior are ranked lower than 7 (%) 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.

Eaton Vance Tax

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton Vance Tax are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly unfluctuating basic indicators, Eaton Vance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Trust and Eaton Vance

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

The idea behind First Trust Senior and Eaton Vance Tax 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.