Correlation Between First Trust and VanEck China

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

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

Diversification Opportunities for First Trust and VanEck China

0.03

Correlation Coefficient

First Trust  VanEck China

Significant diversification

The 3 months correlation between First and VanEck is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Managed and VanEck China Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck China Bond 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 Managed are associated (or correlated) with VanEck China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck China Bond has no effect on the direction of First Trust i.e., First Trust and VanEck China go up and down completely randomly.

Pair Corralation between First Trust and VanEck China

Considering the 90-day investment horizon First Trust Managed is expected to generate 0.78 times more return on investment than VanEck China. However, First Trust Managed is 1.29 times less risky than VanEck China. It trades about -0.02 of its potential returns per unit of risk. VanEck China Bond is currently generating about -0.05 per unit of risk. If you would invest  5,144  in First Trust Managed on September 18, 2024 and sell it today you would lose (16.00) from holding First Trust Managed or give up 0.31% of portfolio value over 90 days.

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

First Trust Managed  vs.  VanEck China Bond

First Trust Managed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Managed has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, First Trust is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

VanEck China Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with First Trust and VanEck China

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

The idea behind First Trust Managed and VanEck China Bond 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.