Correlation Between First Trust and Stone Harbor

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

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

Diversification Opportunities for First Trust and Stone Harbor

0.65

Correlation Coefficient

First Trust  Stone Harbor

Poor diversification

The 3 months correlation between First and Stone is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Mortgage and Stone Harbor Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stone Harbor Emerging 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 Mortgage are associated (or correlated) with Stone Harbor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stone Harbor Emerging has no effect on the direction of First Trust i.e., First Trust and Stone Harbor go up and down completely randomly.

Pair Corralation between First Trust and Stone Harbor

Considering the 90-day investment horizon First Trust is expected to generate 2.31 times less return on investment than Stone Harbor. But when comparing it to its historical volatility, First Trust Mortgage is 1.48 times less risky than Stone Harbor. It trades about 0.1 of its potential returns per unit of risk. Stone Harbor Emerging is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  461.00  in Stone Harbor Emerging on December 27, 2024 and sell it today you would earn a total of  48.00  from holding Stone Harbor Emerging or generate 10.41% return on investment over 90 days.

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

First Trust Mortgage  vs.  Stone Harbor Emerging

First Trust Mortgage

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Mortgage are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly 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.

Stone Harbor Emerging

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Stone Harbor Emerging are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. Despite nearly inconsistent fundamental indicators, Stone Harbor may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with First Trust and Stone Harbor

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

The idea behind First Trust Mortgage and Stone Harbor Emerging 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.