Correlation Between International Drawdown and First Trust

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

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

Diversification Opportunities for International Drawdown and First Trust

-0.56

Correlation Coefficient

International Drawdown  First Trust

Excellent diversification

The 3 months correlation between International and First is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding International Drawdown Managed and First Trust BuyWrite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust BuyWrite and International Drawdown 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 International Drawdown Managed 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 BuyWrite has no effect on the direction of International Drawdown i.e., International Drawdown and First Trust go up and down completely randomly.

Pair Corralation between International Drawdown and First Trust

Given the investment horizon of 90 days International Drawdown Managed is expected to under-perform the First Trust. In addition to that, International Drawdown is 1.56 times more volatile than First Trust BuyWrite. It trades about -0.03 of its total potential returns per unit of risk. First Trust BuyWrite is currently generating about 0.21 per unit of volatility. If you would invest  2,242  in First Trust BuyWrite on September 19, 2024 and sell it today you would earn a total of  138.00  from holding First Trust BuyWrite or generate 6.16% return on investment over 90 days.

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

International Drawdown Managed  vs.  First Trust BuyWrite

International Drawdown

Risk-Adjusted Performance

0 of 100

Very Weak

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

First Trust BuyWrite

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust BuyWrite are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, First Trust is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with International Drawdown and First Trust

The main advantage of trading using opposite International Drawdown and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Drawdown 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 International Drawdown Managed and First Trust BuyWrite 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.