Correlation Between First Trust and Litman Gregory

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

Diversification Opportunities for First Trust and Litman Gregory

0.64

Correlation Coefficient

First Trust  Litman Gregory

Poor diversification

The 3 months correlation between First and Litman is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Specialty and Litman Gregory Masters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Litman Gregory Masters 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 Litman Gregory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Litman Gregory Masters has no effect on the direction of First Trust i.e., First Trust and Litman Gregory go up and down completely randomly.

Pair Corralation between First Trust and Litman Gregory

Considering the 90-day investment horizon First Trust is expected to generate 2.23 times less return on investment than Litman Gregory. But when comparing it to its historical volatility, First Trust Specialty is 1.02 times less risky than Litman Gregory. It trades about 0.05 of its potential returns per unit of risk. Litman Gregory Masters is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,742  in Litman Gregory Masters on December 27, 2024 and sell it today you would earn a total of  120.00  from holding Litman Gregory Masters or generate 6.89% 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.  Litman Gregory Masters

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 3 (%) 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.

Litman Gregory Masters

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Litman Gregory Masters are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Litman Gregory may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with First Trust and Litman Gregory

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

The idea behind First Trust Specialty and Litman Gregory Masters 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.