Correlation Between First Trust and Hartford Multifactor

Can any of the company-specific risk be diversified away by investing in both First Trust and Hartford Multifactor 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 Hartford Multifactor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Trust Value and Hartford Multifactor Equity, you can compare the effects of market volatilities on First Trust and Hartford Multifactor 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 Hartford Multifactor. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Hartford Multifactor.

Diversification Opportunities for First Trust and Hartford Multifactor

0.88

Correlation Coefficient

First Trust  Hartford Multifactor

Very poor diversification

The 3 months correlation between First and Hartford is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Value and Hartford Multifactor Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hartford Multifactor 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 Value are associated (or correlated) with Hartford Multifactor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hartford Multifactor has no effect on the direction of First Trust i.e., First Trust and Hartford Multifactor go up and down completely randomly.

Pair Corralation between First Trust and Hartford Multifactor

Considering the 90-day investment horizon First Trust Value is expected to generate 1.0 times more return on investment than Hartford Multifactor. However, First Trust Value is 1.0 times less risky than Hartford Multifactor. It trades about -0.04 of its potential returns per unit of risk. Hartford Multifactor Equity is currently generating about -0.05 per unit of risk. If you would invest  4,620  in First Trust Value on December 2, 2024 and sell it today you would lose (88.00) from holding First Trust Value or give up 1.9% of portfolio value over 90 days.

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

First Trust Value  vs.  Hartford Multifactor Equity

First Trust Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Value has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Hartford Multifactor

Risk-Adjusted Performance

Very Weak

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

Pair Trading with First Trust and Hartford Multifactor

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

The idea behind First Trust Value and Hartford Multifactor Equity 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.