Correlation Between First Trust and Alpha Blue

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

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

Diversification Opportunities for First Trust and Alpha Blue

0.96

Correlation Coefficient

First Trust  Alpha Blue

Almost no diversification

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

Pair Corralation between First Trust and Alpha Blue

Allowing for the 90-day total investment horizon First Trust Dorsey is expected to under-perform the Alpha Blue. In addition to that, First Trust is 1.34 times more volatile than Alpha Blue Capital. It trades about -0.07 of its total potential returns per unit of risk. Alpha Blue Capital is currently generating about -0.03 per unit of volatility. If you would invest  2,870  in Alpha Blue Capital on December 27, 2024 and sell it today you would lose (48.00) from holding Alpha Blue Capital or give up 1.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

First Trust Dorsey  vs.  Alpha Blue Capital

First Trust Dorsey

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Dorsey has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, First Trust is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Alpha Blue Capital

Risk-Adjusted Performance

Very Weak

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

Pair Trading with First Trust and Alpha Blue

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

The idea behind First Trust Dorsey and Alpha Blue 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.