Correlation Between Managed Account and First Trust

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

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

Diversification Opportunities for Managed Account and First Trust

0.73

Correlation Coefficient

Managed Account  First Trust

Poor diversification

The 3 months correlation between Managed and First is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Managed Account Series and First Trust Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Global and Managed Account 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 Managed Account Series 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 Global has no effect on the direction of Managed Account i.e., Managed Account and First Trust go up and down completely randomly.

Pair Corralation between Managed Account and First Trust

Assuming the 90 days horizon Managed Account is expected to generate 1.77 times less return on investment than First Trust. But when comparing it to its historical volatility, Managed Account Series is 5.87 times less risky than First Trust. It trades about 0.18 of its potential returns per unit of risk. First Trust Global is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,486  in First Trust Global on December 28, 2024 and sell it today you would earn a total of  54.00  from holding First Trust Global or generate 3.63% return on investment over 90 days.

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

Managed Account Series  vs.  First Trust Global

Managed Account Series

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Managed Account Series are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Managed Account is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Trust Global

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Global are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Managed Account and First Trust

The main advantage of trading using opposite Managed Account and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Managed Account 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 Managed Account Series and First Trust Global 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.