Correlation Between First Trust and Arrow Reserve

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

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

Diversification Opportunities for First Trust and Arrow Reserve

0.99

Correlation Coefficient

First Trust  Arrow Reserve

No risk reduction

The 3 months correlation between First and Arrow is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Enhanced and Arrow Reserve Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Reserve 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 Enhanced are associated (or correlated) with Arrow Reserve. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrow Reserve Capital has no effect on the direction of First Trust i.e., First Trust and Arrow Reserve go up and down completely randomly.

Pair Corralation between First Trust and Arrow Reserve

Given the investment horizon of 90 days First Trust Enhanced is expected to generate about the same return on investment as Arrow Reserve Capital. However, First Trust is 1.56 times more volatile than Arrow Reserve Capital. It trades about 0.56 of its potential returns per unit of risk. Arrow Reserve Capital is currently producing about 0.87 per unit of risk. If you would invest  9,952  in Arrow Reserve Capital on August 30, 2024 and sell it today you would earn a total of  109.00  from holding Arrow Reserve Capital or generate 1.1% return on investment over 90 days.

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

First Trust Enhanced  vs.  Arrow Reserve Capital

First Trust Enhanced

Risk-Adjusted Performance

43 of 100

Excellent

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Enhanced are ranked lower than 43 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Arrow Reserve Capital

Risk-Adjusted Performance

68 of 100

Market Crasher

Compared to the overall equity markets, risk-adjusted returns on investments in Arrow Reserve Capital are ranked lower than 68 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Arrow Reserve is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Arrow Reserve

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

The idea behind First Trust Enhanced and Arrow Reserve 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.