Correlation Between First Trust and VictoryShares THB

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

Diversification Opportunities for First Trust and VictoryShares THB

0.74

Correlation Coefficient

First Trust  VictoryShares THB

Poor diversification

The 3 months correlation between First and VictoryShares is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dorsey and VictoryShares THB Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VictoryShares THB Mid 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 VictoryShares THB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VictoryShares THB Mid has no effect on the direction of First Trust i.e., First Trust and VictoryShares THB go up and down completely randomly.

Pair Corralation between First Trust and VictoryShares THB

Allowing for the 90-day total investment horizon First Trust Dorsey is expected to under-perform the VictoryShares THB. In addition to that, First Trust is 1.33 times more volatile than VictoryShares THB Mid. It trades about -0.1 of its total potential returns per unit of risk. VictoryShares THB Mid is currently generating about -0.04 per unit of volatility. If you would invest  2,794  in VictoryShares THB Mid on December 30, 2024 and sell it today you would lose (71.00) from holding VictoryShares THB Mid or give up 2.54% of portfolio value over 90 days.

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

First Trust Dorsey  vs.  VictoryShares THB Mid

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 latest abnormal performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

VictoryShares THB Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days VictoryShares THB Mid has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, VictoryShares THB is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with First Trust and VictoryShares THB

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

The idea behind First Trust Dorsey and VictoryShares THB Mid 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.