Correlation Between Quantitative and First Tr

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

By analyzing existing cross correlation between Quantitative Longshort Equity and First Tr Enhanced, you can compare the effects of market volatilities on Quantitative and First Tr 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 Quantitative with a short position of First Tr. Check out your portfolio center. Please also check ongoing floating volatility patterns of Quantitative and First Tr.

Diversification Opportunities for Quantitative and First Tr

0.5

Correlation Coefficient

Quantitative  First Tr

Very weak diversification

The 3 months correlation between Quantitative and First is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Quantitative Longshort Equity and First Tr Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Tr Enhanced and Quantitative 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 Quantitative Longshort Equity are associated (or correlated) with First Tr. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Tr Enhanced has no effect on the direction of Quantitative i.e., Quantitative and First Tr go up and down completely randomly.

Pair Corralation between Quantitative and First Tr

Assuming the 90 days horizon Quantitative is expected to generate 6.6 times less return on investment than First Tr. But when comparing it to its historical volatility, Quantitative Longshort Equity is 1.17 times less risky than First Tr. It trades about 0.02 of its potential returns per unit of risk. First Tr Enhanced is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,774  in First Tr Enhanced on October 5, 2024 and sell it today you would earn a total of  359.00  from holding First Tr Enhanced or generate 20.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.68%
Values	Daily Returns

Quantitative Longshort Equity  vs.  First Tr Enhanced

Quantitative Longshort

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Quantitative Longshort Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Quantitative is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Tr Enhanced

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Tr Enhanced are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, First Tr is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Quantitative and First Tr

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

The idea behind Quantitative Longshort Equity and First Tr Enhanced 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.