Correlation Between First Trust and Richelieu Hardware

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

Diversification Opportunities for First Trust and Richelieu Hardware

-0.16

Correlation Coefficient

First Trust  Richelieu Hardware

Good diversification

The 3 months correlation between First and Richelieu is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Indxx and Richelieu Hardware in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richelieu Hardware 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 Richelieu Hardware. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Richelieu Hardware has no effect on the direction of First Trust i.e., First Trust and Richelieu Hardware go up and down completely randomly.

Pair Corralation between First Trust and Richelieu Hardware

Assuming the 90 days trading horizon First Trust is expected to generate 1.97 times less return on investment than Richelieu Hardware. But when comparing it to its historical volatility, First Trust Indxx is 4.08 times less risky than Richelieu Hardware. It trades about 0.16 of its potential returns per unit of risk. Richelieu Hardware is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,856  in Richelieu Hardware on September 3, 2024 and sell it today you would earn a total of  252.00  from holding Richelieu Hardware or generate 6.54% return on investment over 90 days.

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

First Trust Indxx  vs.  Richelieu Hardware

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 latest stock price disarray, may contribute to short-term losses for the investors.

Richelieu Hardware

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Richelieu Hardware are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, Richelieu Hardware may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Trust and Richelieu Hardware

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

The idea behind First Trust Indxx and Richelieu Hardware 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.