Correlation Between First Trust and Prudential Short

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

Diversification Opportunities for First Trust and Prudential Short

-0.41

Correlation Coefficient

First Trust  Prudential Short

Very good diversification

The 3 months correlation between First and Prudential is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Specialty and Prudential Short Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Short Duration 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 Prudential Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Short Duration has no effect on the direction of First Trust i.e., First Trust and Prudential Short go up and down completely randomly.

Pair Corralation between First Trust and Prudential Short

Considering the 90-day investment horizon First Trust Specialty is expected to generate 3.18 times more return on investment than Prudential Short. However, First Trust is 3.18 times more volatile than Prudential Short Duration. It trades about 0.15 of its potential returns per unit of risk. Prudential Short Duration is currently generating about -0.09 per unit of risk. If you would invest  398.00  in First Trust Specialty on September 16, 2024 and sell it today you would earn a total of  31.00  from holding First Trust Specialty or generate 7.79% return on investment over 90 days.

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

First Trust Specialty  vs.  Prudential Short Duration

First Trust Specialty

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Specialty are ranked lower than 12 (%) 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 January 2025.

Prudential Short Duration

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Short Duration has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Prudential Short 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 Prudential Short

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

The idea behind First Trust Specialty and Prudential Short Duration 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.