Correlation Between First Trust and Virtus Reaves

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

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

Diversification Opportunities for First Trust and Virtus Reaves

0.57

Correlation Coefficient

First Trust  Virtus Reaves

Very weak diversification

The 3 months correlation between First and Virtus is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Utilities and Virtus Reaves Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virtus Reaves Utilities 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 Utilities are associated (or correlated) with Virtus Reaves. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virtus Reaves Utilities has no effect on the direction of First Trust i.e., First Trust and Virtus Reaves go up and down completely randomly.

Pair Corralation between First Trust and Virtus Reaves

Considering the 90-day investment horizon First Trust Utilities is expected to generate 0.49 times more return on investment than Virtus Reaves. However, First Trust Utilities is 2.03 times less risky than Virtus Reaves. It trades about -0.01 of its potential returns per unit of risk. Virtus Reaves Utilities is currently generating about -0.02 per unit of risk. If you would invest  4,079  in First Trust Utilities on November 28, 2024 and sell it today you would lose (34.00) from holding First Trust Utilities or give up 0.83% of portfolio value over 90 days.

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

First Trust Utilities  vs.  Virtus Reaves Utilities

First Trust Utilities

Risk-Adjusted Performance

Very Weak

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

Virtus Reaves Utilities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Virtus Reaves Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Virtus Reaves is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with First Trust and Virtus Reaves

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

The idea behind First Trust Utilities and Virtus Reaves Utilities 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.