Correlation Between FlexShares Global and First Trust

Can any of the company-specific risk be diversified away by investing in both FlexShares 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 FlexShares 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 FlexShares Global Quality and First Trust RBA, you can compare the effects of market volatilities on FlexShares 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 FlexShares Global with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares Global and First Trust.

Diversification Opportunities for FlexShares Global and First Trust

-0.38

Correlation Coefficient

FlexShares Global  First Trust

Very good diversification

The 3 months correlation between FlexShares and First is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares Global Quality and First Trust RBA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust RBA and FlexShares 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 FlexShares Global Quality 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 RBA has no effect on the direction of FlexShares Global i.e., FlexShares Global and First Trust go up and down completely randomly.

Pair Corralation between FlexShares Global and First Trust

Given the investment horizon of 90 days FlexShares Global is expected to generate 1.45 times less return on investment than First Trust. But when comparing it to its historical volatility, FlexShares Global Quality is 1.27 times less risky than First Trust. It trades about 0.12 of its potential returns per unit of risk. First Trust RBA is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,316  in First Trust RBA on September 15, 2024 and sell it today you would earn a total of  576.00  from holding First Trust RBA or generate 17.37% return on investment over 90 days.

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

FlexShares Global Quality  vs.  First Trust RBA

FlexShares Global Quality

Risk-Adjusted Performance

0 of 100

Very Weak

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

First Trust RBA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust RBA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with FlexShares Global and First Trust

The main advantage of trading using opposite FlexShares Global and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares 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 FlexShares Global Quality and First Trust RBA 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..