Correlation Between First Trust and Tekla Life

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

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

Diversification Opportunities for First Trust and Tekla Life

0.74

Correlation Coefficient

First Trust  Tekla Life

Poor diversification

The 3 months correlation between First and Tekla is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Specialty and Tekla Life Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tekla Life Sciences 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 Specialty are associated (or correlated) with Tekla Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tekla Life Sciences has no effect on the direction of First Trust i.e., First Trust and Tekla Life go up and down completely randomly.

Pair Corralation between First Trust and Tekla Life

Considering the 90-day investment horizon First Trust Specialty is expected to generate 1.02 times more return on investment than Tekla Life. However, First Trust is 1.02 times more volatile than Tekla Life Sciences. It trades about 0.04 of its potential returns per unit of risk. Tekla Life Sciences is currently generating about 0.0 per unit of risk. If you would invest  422.00  in First Trust Specialty on December 27, 2024 and sell it today you would earn a total of  9.00  from holding First Trust Specialty or generate 2.13% return on investment over 90 days.

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

First Trust Specialty  vs.  Tekla Life Sciences

First Trust Specialty

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Specialty are ranked lower than 2 (%) of all funds and portfolios of funds 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.

Tekla Life Sciences

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tekla Life Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Tekla Life is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with First Trust and Tekla Life

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

The idea behind First Trust Specialty and Tekla Life Sciences 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.