Correlation Between First Trust and Xtrackers Russell

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

Diversification Opportunities for First Trust and Xtrackers Russell

0.9

Correlation Coefficient

First Trust  Xtrackers Russell

Almost no diversification

The 3 months correlation between First and Xtrackers is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dorsey and Xtrackers Russell Multifactor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers Russell 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 Xtrackers Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers Russell has no effect on the direction of First Trust i.e., First Trust and Xtrackers Russell go up and down completely randomly.

Pair Corralation between First Trust and Xtrackers Russell

Allowing for the 90-day total investment horizon First Trust Dorsey is expected to under-perform the Xtrackers Russell. In addition to that, First Trust is 1.54 times more volatile than Xtrackers Russell Multifactor. It trades about -0.08 of its total potential returns per unit of risk. Xtrackers Russell Multifactor is currently generating about -0.01 per unit of volatility. If you would invest  5,403  in Xtrackers Russell Multifactor on December 20, 2024 and sell it today you would lose (24.00) from holding Xtrackers Russell Multifactor or give up 0.44% of portfolio value over 90 days.

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

First Trust Dorsey  vs.  Xtrackers Russell Multifactor

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.

Xtrackers Russell

Risk-Adjusted Performance

Very Weak

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

Pair Trading with First Trust and Xtrackers Russell

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

The idea behind First Trust Dorsey and Xtrackers Russell Multifactor 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.