Correlation Between First Trust and Franklin FTSE

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

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

Diversification Opportunities for First Trust and Franklin FTSE

0.8

Correlation Coefficient

First Trust  Franklin FTSE

Very poor diversification

The 3 months correlation between First and Franklin is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Japan and Franklin FTSE Brazil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin FTSE Brazil 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 Japan are associated (or correlated) with Franklin FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin FTSE Brazil has no effect on the direction of First Trust i.e., First Trust and Franklin FTSE go up and down completely randomly.

Pair Corralation between First Trust and Franklin FTSE

Considering the 90-day investment horizon First Trust is expected to generate 1.54 times less return on investment than Franklin FTSE. But when comparing it to its historical volatility, First Trust Japan is 1.4 times less risky than Franklin FTSE. It trades about 0.18 of its potential returns per unit of risk. Franklin FTSE Brazil is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,424  in Franklin FTSE Brazil on December 25, 2024 and sell it today you would earn a total of  249.00  from holding Franklin FTSE Brazil or generate 17.49% return on investment over 90 days.

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

First Trust Japan  vs.  Franklin FTSE Brazil

First Trust Japan

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Japan are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain forward-looking indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Franklin FTSE Brazil

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin FTSE Brazil are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental drivers, Franklin FTSE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and Franklin FTSE

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

The idea behind First Trust Japan and Franklin FTSE Brazil 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.