Correlation Between First Trust and New Economy
Can any of the company-specific risk be diversified away by investing in both First Trust and New Economy 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 New Economy 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 New Economy Fund, you can compare the effects of market volatilities on First Trust and New Economy 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 New Economy. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and New Economy.
Diversification Opportunities for First Trust and New Economy
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between First and New is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Short and New Economy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Economy Fund 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 New Economy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Economy Fund has no effect on the direction of First Trust i.e., First Trust and New Economy go up and down completely randomly.
Pair Corralation between First Trust and New Economy
Assuming the 90 days horizon First Trust Short is expected to generate 0.14 times more return on investment than New Economy. However, First Trust Short is 7.34 times less risky than New Economy. It trades about 0.07 of its potential returns per unit of risk. New Economy Fund is currently generating about -0.05 per unit of risk. If you would invest 1,774 in First Trust Short on December 27, 2024 and sell it today you would earn a total of 13.00 from holding First Trust Short or generate 0.73% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
First Trust Short vs. New Economy Fund
Performance |
Timeline |
First Trust Short |
New Economy Fund |
First Trust and New Economy Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with First Trust and New Economy
The main advantage of trading using opposite First Trust and New Economy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, New Economy 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 New Economy will offset losses from the drop in New Economy's long position.First Trust vs. Barings Emerging Markets | First Trust vs. Aqr Equity Market | First Trust vs. Victory Cemp Market | First Trust vs. Pnc Emerging Markets |
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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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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