Correlation Between First Trust and DHCNI

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

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

Diversification Opportunities for First Trust and DHCNI

-0.33

Correlation Coefficient

First Trust  DHCNI

Very good diversification

The 3 months correlation between First and DHCNI is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Enhanced and DHCNI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DHCNI 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 Enhanced are associated (or correlated) with DHCNI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DHCNI has no effect on the direction of First Trust i.e., First Trust and DHCNI go up and down completely randomly.

Pair Corralation between First Trust and DHCNI

Considering the 90-day investment horizon First Trust is expected to generate 1.55 times less return on investment than DHCNI. But when comparing it to its historical volatility, First Trust Enhanced is 2.61 times less risky than DHCNI. It trades about 0.11 of its potential returns per unit of risk. DHCNI is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  877.00  in DHCNI on September 20, 2024 and sell it today you would earn a total of  643.00  from holding DHCNI or generate 73.32% return on investment over 90 days.

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

First Trust Enhanced  vs.  DHCNI

First Trust Enhanced

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Enhanced are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, First Trust is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

DHCNI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DHCNI has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with First Trust and DHCNI

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

The idea behind First Trust Enhanced and DHCNI 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.