Correlation Between First Trust and Consolidated Water

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

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

Diversification Opportunities for First Trust and Consolidated Water

0.51

Correlation Coefficient

First Trust  Consolidated Water

Very weak diversification

The 3 months correlation between First and Consolidated is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Water and Consolidated Water Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consolidated Water 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 Water are associated (or correlated) with Consolidated Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consolidated Water has no effect on the direction of First Trust i.e., First Trust and Consolidated Water go up and down completely randomly.

Pair Corralation between First Trust and Consolidated Water

Considering the 90-day investment horizon First Trust is expected to generate 1.79 times less return on investment than Consolidated Water. But when comparing it to its historical volatility, First Trust Water is 2.44 times less risky than Consolidated Water. It trades about 0.01 of its potential returns per unit of risk. Consolidated Water Co is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,630  in Consolidated Water Co on September 17, 2024 and sell it today you would earn a total of  2.00  from holding Consolidated Water Co or generate 0.08% return on investment over 90 days.

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

First Trust Water  vs.  Consolidated Water Co

First Trust Water

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Water are ranked lower than 1 (%) 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 latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Consolidated Water

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consolidated Water Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Consolidated Water is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Consolidated Water

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

The idea behind First Trust Water and Consolidated Water Co 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.