Correlation Between First Trust and John Hancock

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

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

Diversification Opportunities for First Trust and John Hancock

0.82

Correlation Coefficient

First Trust  John Hancock

Very poor diversification

The 3 months correlation between First and John is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Institutional and John Hancock Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on John Hancock Preferred 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 Institutional are associated (or correlated) with John Hancock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of John Hancock Preferred has no effect on the direction of First Trust i.e., First Trust and John Hancock go up and down completely randomly.

Pair Corralation between First Trust and John Hancock

Given the investment horizon of 90 days First Trust is expected to generate 2.17 times less return on investment than John Hancock. But when comparing it to its historical volatility, First Trust Institutional is 1.54 times less risky than John Hancock. It trades about 0.09 of its potential returns per unit of risk. John Hancock Preferred is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,251  in John Hancock Preferred on August 30, 2024 and sell it today you would earn a total of  52.00  from holding John Hancock Preferred or generate 2.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

First Trust Institutional  vs.  John Hancock Preferred

First Trust Institutional

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Institutional are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

John Hancock Preferred

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days John Hancock Preferred has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, John Hancock is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Trust and John Hancock

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

The idea behind First Trust Institutional and John Hancock Preferred 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.