Correlation Between First Trust and Burney Factor

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

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

Diversification Opportunities for First Trust and Burney Factor

0.96

Correlation Coefficient

First Trust  Burney Factor

Almost no diversification

The 3 months correlation between First and Burney is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Growth and Burney Factor Rotation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burney Factor Rotation 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 Growth are associated (or correlated) with Burney Factor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Burney Factor Rotation has no effect on the direction of First Trust i.e., First Trust and Burney Factor go up and down completely randomly.

Pair Corralation between First Trust and Burney Factor

Given the investment horizon of 90 days First Trust Growth is expected to under-perform the Burney Factor. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Growth is 1.1 times less risky than Burney Factor. The etf trades about -0.06 of its potential returns per unit of risk. The Burney Factor Rotation is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  4,170  in Burney Factor Rotation on December 28, 2024 and sell it today you would lose (105.00) from holding Burney Factor Rotation or give up 2.52% of portfolio value over 90 days.

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

First Trust Growth  vs.  Burney Factor Rotation

First Trust Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Growth has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Burney Factor Rotation

Risk-Adjusted Performance

Very Weak

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

Pair Trading with First Trust and Burney Factor

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

The idea behind First Trust Growth and Burney Factor Rotation 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.