Correlation Between First Trust and Ned Davis

Can any of the company-specific risk be diversified away by investing in both First Trust and Ned Davis 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 Ned Davis 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 Ned Davis Research, you can compare the effects of market volatilities on First Trust and Ned Davis 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 Ned Davis. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Ned Davis.

Diversification Opportunities for First Trust and Ned Davis

0.33

Correlation Coefficient

First Trust  Ned Davis

Weak diversification

The 3 months correlation between First and Ned is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Multi Asset and Ned Davis Research in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ned Davis Research 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 Ned Davis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ned Davis Research has no effect on the direction of First Trust i.e., First Trust and Ned Davis go up and down completely randomly.

Pair Corralation between First Trust and Ned Davis

Given the investment horizon of 90 days First Trust Multi Asset is expected to generate 0.81 times more return on investment than Ned Davis. However, First Trust Multi Asset is 1.24 times less risky than Ned Davis. It trades about 0.11 of its potential returns per unit of risk. Ned Davis Research is currently generating about -0.02 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  53.00  from holding First Trust Multi Asset or generate 3.32% return on investment over 90 days.

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

First Trust Multi Asset  vs.  Ned Davis Research

First Trust Multi

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Multi Asset are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable forward indicators, First Trust is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Ned Davis Research

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ned Davis Research has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Ned Davis is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Ned Davis

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

The idea behind First Trust Multi Asset and Ned Davis Research 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.