Correlation Between First Trust and Pax Small

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

Diversification Opportunities for First Trust and Pax Small

0.36

Correlation Coefficient

First Trust  Pax Small

Weak diversification

The 3 months correlation between First and Pax is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Specialty and Pax Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pax Small Cap 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 Pax Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pax Small Cap has no effect on the direction of First Trust i.e., First Trust and Pax Small go up and down completely randomly.

Pair Corralation between First Trust and Pax Small

Considering the 90-day investment horizon First Trust Specialty is expected to generate 0.99 times more return on investment than Pax Small. However, First Trust Specialty is 1.01 times less risky than Pax Small. It trades about 0.09 of its potential returns per unit of risk. Pax Small Cap is currently generating about 0.06 per unit of risk. If you would invest  381.00  in First Trust Specialty on October 7, 2024 and sell it today you would earn a total of  55.00  from holding First Trust Specialty or generate 14.44% return on investment over 90 days.

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

First Trust Specialty  vs.  Pax Small Cap

First Trust Specialty

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Specialty are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat unsteady technical and fundamental indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pax Small Cap

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pax Small Cap are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Pax Small 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 Pax Small

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

The idea behind First Trust Specialty and Pax Small Cap 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.

Check out your portfolio center.

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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.