Correlation Between First Trust and Focus Financial

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

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

Diversification Opportunities for First Trust and Focus Financial

0.15

Correlation Coefficient

First Trust  Focus Financial

Average diversification

The 3 months correlation between First and Focus is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dynamic and Focus Financial Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focus Financial Partners 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 Dynamic are associated (or correlated) with Focus Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focus Financial Partners has no effect on the direction of First Trust i.e., First Trust and Focus Financial go up and down completely randomly.

Pair Corralation between First Trust and Focus Financial

Given the investment horizon of 90 days First Trust Dynamic is expected to generate 8.71 times more return on investment than Focus Financial. However, First Trust is 8.71 times more volatile than Focus Financial Partners. It trades about 0.23 of its potential returns per unit of risk. Focus Financial Partners is currently generating about -0.06 per unit of risk. If you would invest  1,273  in First Trust Dynamic on August 31, 2024 and sell it today you would earn a total of  91.00  from holding First Trust Dynamic or generate 7.15% return on investment over 90 days.

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

First Trust Dynamic  vs.  Focus Financial Partners

First Trust Dynamic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Dynamic has generated negative risk-adjusted returns adding no value to fund investors. In spite of comparatively stable technical and 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.

Focus Financial Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Focus Financial Partners has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Focus Financial is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with First Trust and Focus Financial

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

The idea behind First Trust Dynamic and Focus Financial Partners 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.