Correlation Between First Trust and FlexShares Morningstar

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

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

Diversification Opportunities for First Trust and FlexShares Morningstar

0.35

Correlation Coefficient

First Trust  FlexShares Morningstar

Weak diversification

The 3 months correlation between First and FlexShares is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Materials and FlexShares Morningstar Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Morningstar 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 Materials are associated (or correlated) with FlexShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Morningstar has no effect on the direction of First Trust i.e., First Trust and FlexShares Morningstar go up and down completely randomly.

Pair Corralation between First Trust and FlexShares Morningstar

Considering the 90-day investment horizon First Trust Materials is expected to under-perform the FlexShares Morningstar. In addition to that, First Trust is 1.67 times more volatile than FlexShares Morningstar Global. It trades about -0.01 of its total potential returns per unit of risk. FlexShares Morningstar Global is currently generating about 0.16 per unit of volatility. If you would invest  3,591  in FlexShares Morningstar Global on December 29, 2024 and sell it today you would earn a total of  281.00  from holding FlexShares Morningstar Global or generate 7.83% return on investment over 90 days.

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

First Trust Materials  vs.  FlexShares Morningstar Global

First Trust Materials

Risk-Adjusted Performance

Very Weak

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

FlexShares Morningstar

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Morningstar Global are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, FlexShares Morningstar may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with First Trust and FlexShares Morningstar

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

The idea behind First Trust Materials and FlexShares Morningstar Global 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.