Correlation Between Kinetics Paradigm and First Trust

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

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

Diversification Opportunities for Kinetics Paradigm and First Trust

0.83

Correlation Coefficient

Kinetics Paradigm  First Trust

Very poor diversification

The 3 months correlation between Kinetics and First is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Kinetics Paradigm Fund and First Trust Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Short and Kinetics Paradigm 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 Kinetics Paradigm Fund 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 Short has no effect on the direction of Kinetics Paradigm i.e., Kinetics Paradigm and First Trust go up and down completely randomly.

Pair Corralation between Kinetics Paradigm and First Trust

Assuming the 90 days horizon Kinetics Paradigm Fund is expected to generate 21.0 times more return on investment than First Trust. However, Kinetics Paradigm is 21.0 times more volatile than First Trust Short. It trades about 0.2 of its potential returns per unit of risk. First Trust Short is currently generating about 0.17 per unit of risk. If you would invest  10,813  in Kinetics Paradigm Fund on September 14, 2024 and sell it today you would earn a total of  4,140  from holding Kinetics Paradigm Fund or generate 38.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Kinetics Paradigm Fund  vs.  First Trust Short

Kinetics Paradigm

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Paradigm Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Kinetics Paradigm showed solid returns over the last few months and may actually be approaching a breakup point.

First Trust Short

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Short are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, First Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Kinetics Paradigm and First Trust

The main advantage of trading using opposite Kinetics Paradigm and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kinetics Paradigm 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 Kinetics Paradigm Fund and First Trust Short 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.