Correlation Between First Trust and Columbia Seligman

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

Diversification Opportunities for First Trust and Columbia Seligman

0.91

Correlation Coefficient

First Trust  Columbia Seligman

Almost no diversification

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

Pair Corralation between First Trust and Columbia Seligman

Considering the 90-day investment horizon First Trust is expected to generate 2.22 times less return on investment than Columbia Seligman. But when comparing it to its historical volatility, First Trust Enhanced is 1.45 times less risky than Columbia Seligman. It trades about 0.15 of its potential returns per unit of risk. Columbia Seligman Premium is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  3,172  in Columbia Seligman Premium on September 14, 2024 and sell it today you would earn a total of  419.00  from holding Columbia Seligman Premium or generate 13.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

First Trust Enhanced  vs.  Columbia Seligman Premium

First Trust Enhanced

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Enhanced are ranked lower than 11 (%) 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 latest stock price disturbance, may contribute to short-term losses for the investors.

Columbia Seligman Premium

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Seligman Premium are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Columbia Seligman may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Trust and Columbia Seligman

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

The idea behind First Trust Enhanced and Columbia Seligman Premium 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.