Correlation Between First Trust and VictoryShares Discovery

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

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

Diversification Opportunities for First Trust and VictoryShares Discovery

0.97

Correlation Coefficient

First Trust  VictoryShares Discovery

Almost no diversification

The 3 months correlation between First and VictoryShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Mid and VictoryShares Discovery Enhanc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VictoryShares Discovery 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 Mid are associated (or correlated) with VictoryShares Discovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VictoryShares Discovery has no effect on the direction of First Trust i.e., First Trust and VictoryShares Discovery go up and down completely randomly.

Pair Corralation between First Trust and VictoryShares Discovery

Considering the 90-day investment horizon First Trust Mid is expected to generate 0.96 times more return on investment than VictoryShares Discovery. However, First Trust Mid is 1.04 times less risky than VictoryShares Discovery. It trades about -0.08 of its potential returns per unit of risk. VictoryShares Discovery Enhanced is currently generating about -0.09 per unit of risk. If you would invest  5,302  in First Trust Mid on December 30, 2024 and sell it today you would lose (287.00) from holding First Trust Mid or give up 5.41% of portfolio value over 90 days.

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

First Trust Mid  vs.  VictoryShares Discovery Enhanc

First Trust Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Mid has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, First Trust is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

VictoryShares Discovery

Risk-Adjusted Performance

Very Weak

Over the last 90 days VictoryShares Discovery Enhanced has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, VictoryShares Discovery is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with First Trust and VictoryShares Discovery

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

The idea behind First Trust Mid and VictoryShares Discovery Enhanced 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 CEOs Directory module to screen CEOs from public companies around the world.