Correlation Between First Trust and CI Canadian

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

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

Diversification Opportunities for First Trust and CI Canadian

0.8

Correlation Coefficient

First Trust  CI Canadian

Very poor diversification

The 3 months correlation between First and CIC is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Indxx and CI Canadian Banks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CI Canadian Banks 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 Indxx are associated (or correlated) with CI Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CI Canadian Banks has no effect on the direction of First Trust i.e., First Trust and CI Canadian go up and down completely randomly.

Pair Corralation between First Trust and CI Canadian

Assuming the 90 days trading horizon First Trust is expected to generate 2.89 times less return on investment than CI Canadian. But when comparing it to its historical volatility, First Trust Indxx is 1.2 times less risky than CI Canadian. It trades about 0.16 of its potential returns per unit of risk. CI Canadian Banks is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  1,106  in CI Canadian Banks on August 31, 2024 and sell it today you would earn a total of  118.00  from holding CI Canadian Banks or generate 10.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

First Trust Indxx  vs.  CI Canadian Banks

First Trust Indxx

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Indxx are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

CI Canadian Banks

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in CI Canadian Banks are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, CI Canadian may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with First Trust and CI Canadian

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

The idea behind First Trust Indxx and CI Canadian Banks 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.