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
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between First and New is 0.09. 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 is expected to generate 2.06 times less return on investment than New Economy. But when comparing it to its historical volatility, First Trust Short is 6.06 times less risky than New Economy. It trades about 0.18 of its potential returns per unit of risk. New Economy Fund is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 4,365 in New Economy Fund on December 4, 2024 and sell it today you would earn a total of 1,416 from holding New Economy Fund or generate 32.44% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 99.8% |
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. Delaware Investments Ultrashort | First Trust vs. Alpine Ultra Short | First Trust vs. Touchstone Ultra Short | First Trust vs. Ashmore Emerging Markets |
New Economy vs. New Perspective Fund | New Economy vs. Growth Fund Of | New Economy vs. New World Fund | New Economy vs. American Funds Fundamental |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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