Correlation Between First Trust and Starfleet Innotech

Can any of the company-specific risk be diversified away by investing in both First Trust and Starfleet Innotech 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 Starfleet Innotech 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 Starfleet Innotech, you can compare the effects of market volatilities on First Trust and Starfleet Innotech 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 Starfleet Innotech. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Starfleet Innotech.

Diversification Opportunities for First Trust and Starfleet Innotech

0.25

Correlation Coefficient

First Trust  Starfleet Innotech

Modest diversification

The 3 months correlation between First and Starfleet is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding First Trust High and Starfleet Innotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starfleet Innotech 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 Starfleet Innotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Starfleet Innotech has no effect on the direction of First Trust i.e., First Trust and Starfleet Innotech go up and down completely randomly.

Pair Corralation between First Trust and Starfleet Innotech

Given the investment horizon of 90 days First Trust is expected to generate 115.08 times less return on investment than Starfleet Innotech. But when comparing it to its historical volatility, First Trust High is 37.06 times less risky than Starfleet Innotech. It trades about 0.05 of its potential returns per unit of risk. Starfleet Innotech is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  0.23  in Starfleet Innotech on September 15, 2024 and sell it today you would earn a total of  0.22  from holding Starfleet Innotech or generate 95.65% return on investment over 90 days.

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

First Trust High  vs.  Starfleet Innotech

First Trust High

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust High are ranked lower than 3 (%) 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.

Starfleet Innotech

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Starfleet Innotech are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent forward indicators, Starfleet Innotech displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and Starfleet Innotech

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

The idea behind First Trust High and Starfleet Innotech 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.