Correlation Between Floating Rate and First Trust

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

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

Diversification Opportunities for Floating Rate and First Trust

0.88

Correlation Coefficient

Floating Rate  First Trust

Very poor diversification

The 3 months correlation between Floating and First is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Floating Rate 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 Floating Rate 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 Floating Rate 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 Floating Rate i.e., Floating Rate and First Trust go up and down completely randomly.

Pair Corralation between Floating Rate and First Trust

Assuming the 90 days horizon Floating Rate is expected to generate 1.32 times less return on investment than First Trust. But when comparing it to its historical volatility, Floating Rate Fund is 1.06 times less risky than First Trust. It trades about 0.16 of its potential returns per unit of risk. First Trust Short is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,801  in First Trust Short on September 13, 2024 and sell it today you would earn a total of  18.00  from holding First Trust Short or generate 1.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	97.67%
Values	Daily Returns

Floating Rate Fund  vs.  First Trust Short

Floating Rate

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Floating Rate Fund are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, Floating Rate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Trust Short

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Short are ranked lower than 14 (%) 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 Floating Rate and First Trust

The main advantage of trading using opposite Floating Rate and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Floating Rate 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 Floating Rate 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 CEOs Directory module to screen CEOs from public companies around the world.