Correlation Between First Trust and Ready Capital

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

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

Diversification Opportunities for First Trust and Ready Capital

0.14

Correlation Coefficient

First Trust  Ready Capital

Average diversification

The 3 months correlation between First and Ready is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Consumer and Ready Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ready Capital 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 Consumer are associated (or correlated) with Ready Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ready Capital has no effect on the direction of First Trust i.e., First Trust and Ready Capital go up and down completely randomly.

Pair Corralation between First Trust and Ready Capital

Considering the 90-day investment horizon First Trust Consumer is expected to under-perform the Ready Capital. In addition to that, First Trust is 2.4 times more volatile than Ready Capital. It trades about -0.12 of its total potential returns per unit of risk. Ready Capital is currently generating about -0.12 per unit of volatility. If you would invest  2,441  in Ready Capital on December 27, 2024 and sell it today you would lose (87.00) from holding Ready Capital or give up 3.56% of portfolio value over 90 days.

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

First Trust Consumer  vs.  Ready Capital

First Trust Consumer

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Consumer has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Ready Capital

Risk-Adjusted Performance

Very Weak

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

Pair Trading with First Trust and Ready Capital

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

The idea behind First Trust Consumer and Ready Capital 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.