Correlation Between First Trust and Princeton Capital

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

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

Diversification Opportunities for First Trust and Princeton Capital

0.02

Correlation Coefficient

First Trust  Princeton Capital

Significant diversification

The 3 months correlation between First and Princeton is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding First Trust High and Princeton Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Princeton Capital 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 High are associated (or correlated) with Princeton Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Princeton Capital has no effect on the direction of First Trust i.e., First Trust and Princeton Capital go up and down completely randomly.

Pair Corralation between First Trust and Princeton Capital

Given the investment horizon of 90 days First Trust is expected to generate 1.72 times less return on investment than Princeton Capital. But when comparing it to its historical volatility, First Trust High is 17.07 times less risky than Princeton Capital. It trades about 0.07 of its potential returns per unit of risk. Princeton Capital is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  12.00  in Princeton Capital on December 28, 2024 and sell it today you would lose (1.00) from holding Princeton Capital or give up 8.33% of portfolio value over 90 days.

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

First Trust High  vs.  Princeton Capital

First Trust High

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust High are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, First Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Princeton Capital

Risk-Adjusted Performance

Very Weak

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

Pair Trading with First Trust and Princeton Capital

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

The idea behind First Trust High and Princeton Capital 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.