Correlation Between First Trust and Texas Capital

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

Diversification Opportunities for First Trust and Texas Capital

0.92

Correlation Coefficient

First Trust  Texas Capital

Almost no diversification

The 3 months correlation between First and Texas is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dorsey and Texas Capital Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Capital Funds 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 Texas Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Capital Funds has no effect on the direction of First Trust i.e., First Trust and Texas Capital go up and down completely randomly.

Pair Corralation between First Trust and Texas Capital

Allowing for the 90-day total investment horizon First Trust Dorsey is expected to under-perform the Texas Capital. In addition to that, First Trust is 1.03 times more volatile than Texas Capital Funds. It trades about -0.07 of its total potential returns per unit of risk. Texas Capital Funds is currently generating about -0.02 per unit of volatility. If you would invest  3,280  in Texas Capital Funds on December 27, 2024 and sell it today you would lose (62.00) from holding Texas Capital Funds or give up 1.89% 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.  Texas Capital Funds

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.

Texas Capital Funds

Risk-Adjusted Performance

Very Weak

Over the last 90 days Texas Capital Funds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Texas Capital 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 Texas Capital

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

The idea behind First Trust Dorsey and Texas Capital Funds 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.