Correlation Between First Trust and Hilton Small

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

Diversification Opportunities for First Trust and Hilton Small

0.95

Correlation Coefficient

First Trust  Hilton Small

Almost no diversification

The 3 months correlation between First and Hilton is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dorsey and Hilton Small MidCap Opportunit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hilton Small MidCap 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 Hilton Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hilton Small MidCap has no effect on the direction of First Trust i.e., First Trust and Hilton Small go up and down completely randomly.

Pair Corralation between First Trust and Hilton Small

Allowing for the 90-day total investment horizon First Trust Dorsey is expected to generate 1.03 times more return on investment than Hilton Small. However, First Trust is 1.03 times more volatile than Hilton Small MidCap Opportunity. It trades about -0.07 of its potential returns per unit of risk. Hilton Small MidCap Opportunity is currently generating about -0.08 per unit of risk. If you would invest  6,010  in First Trust Dorsey on December 27, 2024 and sell it today you would lose (315.00) from holding First Trust Dorsey or give up 5.24% 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.  Hilton Small MidCap Opportunit

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.

Hilton Small MidCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hilton Small MidCap Opportunity has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Hilton Small is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Hilton Small

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

The idea behind First Trust Dorsey and Hilton Small MidCap Opportunity 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.