Correlation Between First Trust and Nuveen Pennsylvania

Can any of the company-specific risk be diversified away by investing in both First Trust and Nuveen Pennsylvania 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 Nuveen Pennsylvania 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 Nuveen Pennsylvania Quality, you can compare the effects of market volatilities on First Trust and Nuveen Pennsylvania 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 Nuveen Pennsylvania. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Nuveen Pennsylvania.

Diversification Opportunities for First Trust and Nuveen Pennsylvania

0.65

Correlation Coefficient

First Trust  Nuveen Pennsylvania

Poor diversification

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

Pair Corralation between First Trust and Nuveen Pennsylvania

Considering the 90-day investment horizon First Trust is expected to generate 1.89 times less return on investment than Nuveen Pennsylvania. In addition to that, First Trust is 1.55 times more volatile than Nuveen Pennsylvania Quality. It trades about 0.09 of its total potential returns per unit of risk. Nuveen Pennsylvania Quality is currently generating about 0.27 per unit of volatility. If you would invest  1,119  in Nuveen Pennsylvania Quality on December 2, 2024 and sell it today you would earn a total of  64.00  from holding Nuveen Pennsylvania Quality or generate 5.72% 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.  Nuveen Pennsylvania Quality

First Trust Mortgage

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Mortgage are ranked lower than 3 (%) 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.

Nuveen Pennsylvania

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nuveen Pennsylvania Quality has generated negative risk-adjusted returns adding no value to fund investors. Even with relatively invariable basic indicators, Nuveen Pennsylvania is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with First Trust and Nuveen Pennsylvania

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

The idea behind First Trust Mortgage and Nuveen Pennsylvania Quality 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.