Correlation Between First Trust and Ready Capital

Can any of the company-specific risk be diversified away by investing in both First Trust and Ready Capital 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 Ready Capital 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 Ready Capital, you can compare the effects of market volatilities on First Trust and Ready Capital 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 Ready Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Ready Capital.

Diversification Opportunities for First Trust and Ready Capital

0.53

Correlation Coefficient

First Trust  Ready Capital

Very weak diversification

The 3 months correlation between First and Ready is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Enhanced and Ready Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ready Capital 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 Ready Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ready Capital has no effect on the direction of First Trust i.e., First Trust and Ready Capital go up and down completely randomly.

Pair Corralation between First Trust and Ready Capital

Considering the 90-day investment horizon First Trust Enhanced is expected to generate 1.52 times more return on investment than Ready Capital. However, First Trust is 1.52 times more volatile than Ready Capital. It trades about 0.11 of its potential returns per unit of risk. Ready Capital is currently generating about 0.04 per unit of risk. If you would invest  1,391  in First Trust Enhanced on September 20, 2024 and sell it today you would earn a total of  700.00  from holding First Trust Enhanced or generate 50.32% return on investment over 90 days.

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

First Trust Enhanced  vs.  Ready Capital

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.

Ready Capital

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ready Capital are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Ready Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Ready Capital

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

The idea behind First Trust Enhanced and Ready Capital 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.