Correlation Between FIRE Funds and First Trust

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

By analyzing existing cross correlation between FIRE Funds Income and First Trust Multi Asset, you can compare the effects of market volatilities on FIRE Funds and First Trust 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 FIRE Funds with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of FIRE Funds and First Trust.

Diversification Opportunities for FIRE Funds and First Trust

0.73

Correlation Coefficient

FIRE Funds  First Trust

Poor diversification

The 3 months correlation between FIRE and First is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding FIRE Funds Income and First Trust Multi Asset in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Multi and FIRE Funds 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 FIRE Funds Income are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Multi has no effect on the direction of FIRE Funds i.e., FIRE Funds and First Trust go up and down completely randomly.

Pair Corralation between FIRE Funds and First Trust

Given the investment horizon of 90 days FIRE Funds is expected to generate 1.73 times less return on investment than First Trust. But when comparing it to its historical volatility, FIRE Funds Income is 1.77 times less risky than First Trust. It trades about 0.07 of its potential returns per unit of risk. First Trust Multi Asset is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,594  in First Trust Multi Asset on December 27, 2024 and sell it today you would earn a total of  37.00  from holding First Trust Multi Asset or generate 2.32% return on investment over 90 days.

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

FIRE Funds Income  vs.  First Trust Multi Asset

FIRE Funds Income

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FIRE Funds Income are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, FIRE Funds is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

First Trust Multi

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Multi Asset are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable forward indicators, First Trust is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with FIRE Funds and First Trust

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

The idea behind FIRE Funds Income and First Trust Multi Asset 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.