Correlation Between First Trust and Neuberger Berman

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

Diversification Opportunities for First Trust and Neuberger Berman

0.45

Correlation Coefficient

First Trust  Neuberger Berman

Very weak diversification

The 3 months correlation between First and Neuberger is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dorsey and Neuberger Berman Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neuberger Berman Energy 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 Neuberger Berman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neuberger Berman Energy has no effect on the direction of First Trust i.e., First Trust and Neuberger Berman go up and down completely randomly.

Pair Corralation between First Trust and Neuberger Berman

Allowing for the 90-day total investment horizon First Trust Dorsey is expected to generate 0.89 times more return on investment than Neuberger Berman. However, First Trust Dorsey is 1.13 times less risky than Neuberger Berman. It trades about -0.05 of its potential returns per unit of risk. Neuberger Berman Energy is currently generating about -0.04 per unit of risk. If you would invest  6,142  in First Trust Dorsey on November 28, 2024 and sell it today you would lose (192.00) from holding First Trust Dorsey or give up 3.13% of portfolio value over 90 days.

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

First Trust Dorsey  vs.  Neuberger Berman Energy

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.

Neuberger Berman Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Neuberger Berman Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Neuberger Berman 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 Neuberger Berman

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

The idea behind First Trust Dorsey and Neuberger Berman Energy 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.