Correlation Between AB Low and First Trust

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

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

Diversification Opportunities for AB Low and First Trust

0.61

Correlation Coefficient

AB Low  First Trust

Poor diversification

The 3 months correlation between LOWV and First is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding AB Low Volatility and First Trust Horizon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Horizon and AB Low 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 AB Low Volatility 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 Horizon has no effect on the direction of AB Low i.e., AB Low and First Trust go up and down completely randomly.

Pair Corralation between AB Low and First Trust

Given the investment horizon of 90 days AB Low Volatility is expected to generate 1.27 times more return on investment than First Trust. However, AB Low is 1.27 times more volatile than First Trust Horizon. It trades about -0.12 of its potential returns per unit of risk. First Trust Horizon is currently generating about -0.34 per unit of risk. If you would invest  7,234  in AB Low Volatility on October 9, 2024 and sell it today you would lose (140.40) from holding AB Low Volatility or give up 1.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

AB Low Volatility  vs.  First Trust Horizon

AB Low Volatility

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AB Low Volatility are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, AB Low is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

First Trust Horizon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Horizon has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, First Trust is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with AB Low and First Trust

The main advantage of trading using opposite AB Low and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AB Low 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 AB Low Volatility and First Trust Horizon 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..