Correlation Between First Trust and Nationwide Small

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

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

Diversification Opportunities for First Trust and Nationwide Small

-0.18

Correlation Coefficient

First Trust  Nationwide Small

Good diversification

The 3 months correlation between First and Nationwide is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Short and Nationwide Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nationwide Small Cap 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 Short are associated (or correlated) with Nationwide Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nationwide Small Cap has no effect on the direction of First Trust i.e., First Trust and Nationwide Small go up and down completely randomly.

Pair Corralation between First Trust and Nationwide Small

Assuming the 90 days horizon First Trust Short is expected to generate 0.12 times more return on investment than Nationwide Small. However, First Trust Short is 8.06 times less risky than Nationwide Small. It trades about 0.04 of its potential returns per unit of risk. Nationwide Small Cap is currently generating about -0.23 per unit of risk. If you would invest  1,796  in First Trust Short on December 4, 2024 and sell it today you would earn a total of  6.00  from holding First Trust Short or generate 0.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

First Trust Short  vs.  Nationwide Small Cap

First Trust Short

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Short are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, First Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Nationwide Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nationwide Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with First Trust and Nationwide Small

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

The idea behind First Trust Short and Nationwide Small Cap 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.