Correlation Between First Trust and Renaissance IPO

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

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

Diversification Opportunities for First Trust and Renaissance IPO

0.69

Correlation Coefficient

First Trust  Renaissance IPO

Poor diversification

The 3 months correlation between First and Renaissance is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Equity and Renaissance IPO ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renaissance IPO ETF 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 Equity are associated (or correlated) with Renaissance IPO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renaissance IPO ETF has no effect on the direction of First Trust i.e., First Trust and Renaissance IPO go up and down completely randomly.

Pair Corralation between First Trust and Renaissance IPO

Considering the 90-day investment horizon First Trust Equity is expected to generate 0.92 times more return on investment than Renaissance IPO. However, First Trust Equity is 1.09 times less risky than Renaissance IPO. It trades about 0.07 of its potential returns per unit of risk. Renaissance IPO ETF is currently generating about 0.05 per unit of risk. If you would invest  8,868  in First Trust Equity on December 2, 2024 and sell it today you would earn a total of  3,400  from holding First Trust Equity or generate 38.34% return on investment over 90 days.

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

First Trust Equity  vs.  Renaissance IPO ETF

First Trust Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Equity has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, First Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Renaissance IPO ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days Renaissance IPO ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with First Trust and Renaissance IPO

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

The idea behind First Trust Equity and Renaissance IPO ETF 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.

Check out your portfolio center.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.