Correlation Between First Trust and Harbor Health

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

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

Diversification Opportunities for First Trust and Harbor Health

0.63

Correlation Coefficient

First Trust  Harbor Health

Poor diversification

The 3 months correlation between First and Harbor is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and Harbor Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harbor Health Care and First Trust 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 First Trust Exchange Traded are associated (or correlated) with Harbor Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harbor Health Care has no effect on the direction of First Trust i.e., First Trust and Harbor Health go up and down completely randomly.

Pair Corralation between First Trust and Harbor Health

Given the investment horizon of 90 days First Trust Exchange Traded is expected to under-perform the Harbor Health. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Exchange Traded is 1.53 times less risky than Harbor Health. The etf trades about -0.04 of its potential returns per unit of risk. The Harbor Health Care is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2,673  in Harbor Health Care on November 28, 2024 and sell it today you would lose (16.00) from holding Harbor Health Care or give up 0.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

First Trust Exchange Traded  vs.  Harbor Health Care

First Trust Exchange

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Exchange Traded has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental 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.

Harbor Health Care

Risk-Adjusted Performance

Very Weak

Over the last 90 days Harbor Health Care has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Harbor Health is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Trust and Harbor Health

The main advantage of trading using opposite First Trust and Harbor Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Harbor Health 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 Harbor Health will offset losses from the drop in Harbor Health's long position.

The idea behind First Trust Exchange Traded and Harbor Health Care 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.