Correlation Between First Trust and Dimensional International

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

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

Diversification Opportunities for First Trust and Dimensional International

0.88

Correlation Coefficient

First Trust  Dimensional International

Very poor diversification

The 3 months correlation between First and Dimensional is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Intl and Dimensional International Valu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional International 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 Intl are associated (or correlated) with Dimensional International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional International has no effect on the direction of First Trust i.e., First Trust and Dimensional International go up and down completely randomly.

Pair Corralation between First Trust and Dimensional International

Considering the 90-day investment horizon First Trust Intl is expected to under-perform the Dimensional International. In addition to that, First Trust is 1.15 times more volatile than Dimensional International Value. It trades about -0.06 of its total potential returns per unit of risk. Dimensional International Value is currently generating about 0.08 per unit of volatility. If you would invest  3,626  in Dimensional International Value on September 16, 2024 and sell it today you would earn a total of  31.00  from holding Dimensional International Value or generate 0.85% return on investment over 90 days.

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

First Trust Intl  vs.  Dimensional International Valu

First Trust Intl

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Intl has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, First Trust is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Dimensional International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dimensional International Value has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward indicators, Dimensional International is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with First Trust and Dimensional International

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

The idea behind First Trust Intl and Dimensional International Value 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.