Correlation Between First Trust and PIMCO Preferred

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

Diversification Opportunities for First Trust and PIMCO Preferred

0.7

Correlation Coefficient

First Trust  PIMCO Preferred

Poor diversification

The 3 months correlation between First and PIMCO is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Preferred and PIMCO Preferred And in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PIMCO Preferred And 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 PIMCO Preferred. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PIMCO Preferred And has no effect on the direction of First Trust i.e., First Trust and PIMCO Preferred go up and down completely randomly.

Pair Corralation between First Trust and PIMCO Preferred

Considering the 90-day investment horizon First Trust Preferred is expected to generate 1.62 times more return on investment than PIMCO Preferred. However, First Trust is 1.62 times more volatile than PIMCO Preferred And. It trades about -0.21 of its potential returns per unit of risk. PIMCO Preferred And is currently generating about -0.55 per unit of risk. If you would invest  1,789  in First Trust Preferred on October 10, 2024 and sell it today you would lose (21.00) from holding First Trust Preferred or give up 1.17% of portfolio value over 90 days.

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

First Trust Preferred  vs.  PIMCO Preferred And

First Trust Preferred

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Preferred has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

PIMCO Preferred And

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PIMCO Preferred And has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, PIMCO Preferred 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 PIMCO Preferred

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

The idea behind First Trust Preferred and PIMCO Preferred And 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.