Correlation Between First Trust and KBND

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

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

Diversification Opportunities for First Trust and KBND

-0.83

Correlation Coefficient

First Trust  KBND

Pay attention - limited upside

The 3 months correlation between First and KBND is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding First Trust BuyWrite and KBND in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KBND 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 BuyWrite are associated (or correlated) with KBND. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KBND has no effect on the direction of First Trust i.e., First Trust and KBND go up and down completely randomly.

Pair Corralation between First Trust and KBND

If you would invest  2,306  in First Trust BuyWrite on September 18, 2024 and sell it today you would earn a total of  75.00  from holding First Trust BuyWrite or generate 3.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	5.0%
Values	Daily Returns

First Trust BuyWrite  vs.  KBND

First Trust BuyWrite

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust BuyWrite are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

KBND

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KBND has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, KBND is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Trust and KBND

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

The idea behind First Trust BuyWrite and KBND 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.