Correlation Between First Trust and ClearBridge Sustainable

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

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

Diversification Opportunities for First Trust and ClearBridge Sustainable

0.79

Correlation Coefficient

First Trust  ClearBridge Sustainable

Poor diversification

The 3 months correlation between First and ClearBridge is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Indxx and ClearBridge Sustainable Infras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ClearBridge Sustainable 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 Indxx are associated (or correlated) with ClearBridge Sustainable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ClearBridge Sustainable has no effect on the direction of First Trust i.e., First Trust and ClearBridge Sustainable go up and down completely randomly.

Pair Corralation between First Trust and ClearBridge Sustainable

Given the investment horizon of 90 days First Trust Indxx is expected to generate 0.63 times more return on investment than ClearBridge Sustainable. However, First Trust Indxx is 1.58 times less risky than ClearBridge Sustainable. It trades about 0.42 of its potential returns per unit of risk. ClearBridge Sustainable Infrastructure is currently generating about -0.14 per unit of risk. If you would invest  2,302  in First Trust Indxx on October 22, 2024 and sell it today you would earn a total of  118.00  from holding First Trust Indxx or generate 5.13% return on investment over 90 days.

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

First Trust Indxx  vs.  ClearBridge Sustainable Infras

First Trust Indxx

Risk-Adjusted Performance

0 of 100

Very Weak

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

ClearBridge Sustainable

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ClearBridge Sustainable Infrastructure has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Etf's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Pair Trading with First Trust and ClearBridge Sustainable

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

The idea behind First Trust Indxx and ClearBridge Sustainable Infrastructure 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.