Correlation Between Harvest Equal and First Trust

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

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

Diversification Opportunities for Harvest Equal and First Trust

-0.37

Correlation Coefficient

Harvest Equal  First Trust

Very good diversification

The 3 months correlation between Harvest and First is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Harvest Equal Weight and First Trust Indxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Indxx and Harvest Equal 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 Harvest Equal Weight 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 Indxx has no effect on the direction of Harvest Equal i.e., Harvest Equal and First Trust go up and down completely randomly.

Pair Corralation between Harvest Equal and First Trust

Assuming the 90 days trading horizon Harvest Equal is expected to generate 2.62 times less return on investment than First Trust. In addition to that, Harvest Equal is 1.08 times more volatile than First Trust Indxx. It trades about 0.04 of its total potential returns per unit of risk. First Trust Indxx is currently generating about 0.12 per unit of volatility. If you would invest  798.00  in First Trust Indxx on September 22, 2024 and sell it today you would earn a total of  393.00  from holding First Trust Indxx or generate 49.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Harvest Equal Weight  vs.  First Trust Indxx

Harvest Equal Weight

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Harvest Equal Weight has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Harvest Equal is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

First Trust Indxx

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Indxx are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Harvest Equal and First Trust

The main advantage of trading using opposite Harvest Equal and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Harvest Equal 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 Harvest Equal Weight and First Trust Indxx 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.