Correlation Between First Trust and Hamilton Global

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

Diversification Opportunities for First Trust and Hamilton Global

0.5

Correlation Coefficient

First Trust  Hamilton Global

Very weak diversification

The 3 months correlation between First and Hamilton is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Indxx and Hamilton Global Financials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hamilton Global Fina 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 Hamilton Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hamilton Global Fina has no effect on the direction of First Trust i.e., First Trust and Hamilton Global go up and down completely randomly.

Pair Corralation between First Trust and Hamilton Global

Assuming the 90 days trading horizon First Trust is expected to generate 2.94 times less return on investment than Hamilton Global. But when comparing it to its historical volatility, First Trust Indxx is 2.13 times less risky than Hamilton Global. It trades about 0.16 of its potential returns per unit of risk. Hamilton Global Financials is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,519  in Hamilton Global Financials on September 3, 2024 and sell it today you would earn a total of  271.00  from holding Hamilton Global Financials or generate 10.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

First Trust Indxx  vs.  Hamilton Global Financials

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.

Hamilton Global Fina

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hamilton Global Financials are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, Hamilton Global may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Trust and Hamilton Global

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

The idea behind First Trust Indxx and Hamilton Global Financials 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.