Correlation Between First Trust and Pacer Emerging

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

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

Diversification Opportunities for First Trust and Pacer Emerging

0.58

Correlation Coefficient

First Trust  Pacer Emerging

Very weak diversification

The 3 months correlation between First and Pacer is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Developed and Pacer Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Emerging Markets 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 Developed are associated (or correlated) with Pacer Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Emerging Markets has no effect on the direction of First Trust i.e., First Trust and Pacer Emerging go up and down completely randomly.

Pair Corralation between First Trust and Pacer Emerging

Given the investment horizon of 90 days First Trust is expected to generate 1.7 times less return on investment than Pacer Emerging. But when comparing it to its historical volatility, First Trust Developed is 1.03 times less risky than Pacer Emerging. It trades about 0.06 of its potential returns per unit of risk. Pacer Emerging Markets is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,035  in Pacer Emerging Markets on September 15, 2024 and sell it today you would earn a total of  38.00  from holding Pacer Emerging Markets or generate 1.87% return on investment over 90 days.

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

First Trust Developed  vs.  Pacer Emerging Markets

First Trust Developed

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pacer Emerging Markets

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pacer Emerging Markets are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Pacer Emerging is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with First Trust and Pacer Emerging

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

The idea behind First Trust Developed and Pacer Emerging Markets 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.