Correlation Between First Trust and FlexShares Disciplined

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

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

Diversification Opportunities for First Trust and FlexShares Disciplined

0.91

Correlation Coefficient

First Trust  FlexShares Disciplined

Almost no diversification

The 3 months correlation between First and FlexShares is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Emerging and FlexShares Disciplined Duratio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Disciplined 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 Emerging are associated (or correlated) with FlexShares Disciplined. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Disciplined has no effect on the direction of First Trust i.e., First Trust and FlexShares Disciplined go up and down completely randomly.

Pair Corralation between First Trust and FlexShares Disciplined

Given the investment horizon of 90 days First Trust Emerging is expected to generate 1.86 times more return on investment than FlexShares Disciplined. However, First Trust is 1.86 times more volatile than FlexShares Disciplined Duration. It trades about 0.11 of its potential returns per unit of risk. FlexShares Disciplined Duration is currently generating about 0.14 per unit of risk. If you would invest  2,586  in First Trust Emerging on December 30, 2024 and sell it today you would earn a total of  92.00  from holding First Trust Emerging or generate 3.56% return on investment over 90 days.

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

First Trust Emerging  vs.  FlexShares Disciplined Duratio

First Trust Emerging

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Emerging are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, First Trust is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

FlexShares Disciplined

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Disciplined Duration are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, FlexShares Disciplined is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Trust and FlexShares Disciplined

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

The idea behind First Trust Emerging and FlexShares Disciplined Duration 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.