Correlation Between Lumia and First Trust

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

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

Diversification Opportunities for Lumia and First Trust

-0.21

Correlation Coefficient

Lumia  First Trust

Very good diversification

The 3 months correlation between Lumia and First is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Lumia and First Trust International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust International and Lumia 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 Lumia 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 International has no effect on the direction of Lumia i.e., Lumia and First Trust go up and down completely randomly.

Pair Corralation between Lumia and First Trust

Assuming the 90 days trading horizon Lumia is expected to under-perform the First Trust. In addition to that, Lumia is 5.31 times more volatile than First Trust International. It trades about -0.32 of its total potential returns per unit of risk. First Trust International is currently generating about 0.31 per unit of volatility. If you would invest  4,773  in First Trust International on October 25, 2024 and sell it today you would earn a total of  302.00  from holding First Trust International or generate 6.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	85.71%
Values	Daily Returns

Lumia  vs.  First Trust International

Lumia

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lumia are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Lumia exhibited solid returns over the last few months and may actually be approaching a breakup point.

First Trust International

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust International are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, First Trust is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Lumia and First Trust

The main advantage of trading using opposite Lumia and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumia 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 Lumia and First Trust International 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.