Correlation Between First Trust and Fundamental Income

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

By analyzing existing cross correlation between First Trust Flexible and Fundamental Income Net, you can compare the effects of market volatilities on First Trust and Fundamental Income 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 Fundamental Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Fundamental Income.

Diversification Opportunities for First Trust and Fundamental Income

0.6

Correlation Coefficient

First Trust  Fundamental Income

Poor diversification

The 3 months correlation between First and Fundamental is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Flexible and Fundamental Income Net in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fundamental Income Net 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 Flexible are associated (or correlated) with Fundamental Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fundamental Income Net has no effect on the direction of First Trust i.e., First Trust and Fundamental Income go up and down completely randomly.

Pair Corralation between First Trust and Fundamental Income

Given the investment horizon of 90 days First Trust is expected to generate 5.99 times less return on investment than Fundamental Income. But when comparing it to its historical volatility, First Trust Flexible is 2.3 times less risky than Fundamental Income. It trades about 0.04 of its potential returns per unit of risk. Fundamental Income Net is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,331  in Fundamental Income Net on October 20, 2024 and sell it today you would earn a total of  42.00  from holding Fundamental Income Net or generate 1.8% return on investment over 90 days.

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

First Trust Flexible  vs.  Fundamental Income Net

First Trust Flexible

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Flexible has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, First Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Fundamental Income Net

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fundamental Income Net has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Etf's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the ETF venture institutional investors.

Pair Trading with First Trust and Fundamental Income

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

The idea behind First Trust Flexible and Fundamental Income Net 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.