Correlation Between First Trust and FIRE Funds
Can any of the company-specific risk be diversified away by investing in both First Trust and FIRE Funds 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 FIRE Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Multi Asset and FIRE Funds Income, you can compare the effects of market volatilities on First Trust and FIRE Funds 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 FIRE Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and FIRE Funds.
Diversification Opportunities for First Trust and FIRE Funds
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and FIRE is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Multi Asset and FIRE Funds Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FIRE Funds Income 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 Multi Asset are associated (or correlated) with FIRE Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FIRE Funds Income has no effect on the direction of First Trust i.e., First Trust and FIRE Funds go up and down completely randomly.
Pair Corralation between First Trust and FIRE Funds
Given the investment horizon of 90 days First Trust Multi Asset is expected to generate 1.77 times more return on investment than FIRE Funds. However, First Trust is 1.77 times more volatile than FIRE Funds Income. It trades about 0.07 of its potential returns per unit of risk. FIRE Funds Income is currently generating about 0.07 per unit of risk. If you would invest 1,594 in First Trust Multi Asset on December 27, 2024 and sell it today you would earn a total of 37.00 from holding First Trust Multi Asset or generate 2.32% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
First Trust Multi Asset vs. FIRE Funds Income
Performance |
Timeline |
First Trust Multi |
FIRE Funds Income |
First Trust and FIRE Funds Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with First Trust and FIRE Funds
The main advantage of trading using opposite First Trust and FIRE Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, FIRE Funds 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 FIRE Funds will offset losses from the drop in FIRE Funds' long position.First Trust vs. Global X SuperIncome | First Trust vs. iShares Morningstar Multi Asset | First Trust vs. Invesco CEF Income | First Trust vs. VanEck Fallen Angel |
FIRE Funds vs. Strategy Shares | FIRE Funds vs. Freedom Day Dividend | FIRE Funds vs. Franklin Templeton ETF | FIRE Funds vs. iShares MSCI China |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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