Correlation Between First Trust and AAM Low

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

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

Diversification Opportunities for First Trust and AAM Low

0.92

Correlation Coefficient

First Trust  AAM Low

Almost no diversification

The 3 months correlation between First and AAM is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Preferred and AAM Low Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAM Low Duration 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 Preferred are associated (or correlated) with AAM Low. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAM Low Duration has no effect on the direction of First Trust i.e., First Trust and AAM Low go up and down completely randomly.

Pair Corralation between First Trust and AAM Low

Considering the 90-day investment horizon First Trust is expected to generate 1.4 times less return on investment than AAM Low. But when comparing it to its historical volatility, First Trust Preferred is 1.44 times less risky than AAM Low. It trades about 0.09 of its potential returns per unit of risk. AAM Low Duration is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,019  in AAM Low Duration on December 27, 2024 and sell it today you would earn a total of  37.00  from holding AAM Low Duration or generate 1.83% return on investment over 90 days.

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

First Trust Preferred  vs.  AAM Low Duration

First Trust Preferred

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Preferred are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

AAM Low Duration

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AAM Low Duration are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, AAM Low is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Trust and AAM Low

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

The idea behind First Trust Preferred and AAM Low Duration 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.