Correlation Between Cambria Global and First Trust

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

By analyzing existing cross correlation between Cambria Global Asset and First Trust LongShort, you can compare the effects of market volatilities on Cambria Global and First Trust 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 Cambria Global with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cambria Global and First Trust.

Diversification Opportunities for Cambria Global and First Trust

0.14

Correlation Coefficient

Cambria Global  First Trust

Average diversification

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

Pair Corralation between Cambria Global and First Trust

Considering the 90-day investment horizon Cambria Global is expected to generate 15.52 times less return on investment than First Trust. But when comparing it to its historical volatility, Cambria Global Asset is 1.07 times less risky than First Trust. It trades about 0.02 of its potential returns per unit of risk. First Trust LongShort is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  6,537  in First Trust LongShort on September 17, 2024 and sell it today you would earn a total of  153.00  from holding First Trust LongShort or generate 2.34% return on investment over 90 days.

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

Cambria Global Asset  vs.  First Trust LongShort

Cambria Global Asset

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cambria Global Asset has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Cambria Global is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

First Trust LongShort

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust LongShort are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile essential indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cambria Global and First Trust

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

The idea behind Cambria Global Asset and First Trust LongShort 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.