Correlation Between Manulife Multifactor and First Trust

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

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

Diversification Opportunities for Manulife Multifactor and First Trust

0.94

Correlation Coefficient

Manulife Multifactor  First Trust

Almost no diversification

The 3 months correlation between Manulife and First is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Manulife Multifactor Mid and First Trust SMID in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust SMID and Manulife Multifactor 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 Manulife Multifactor Mid 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 SMID has no effect on the direction of Manulife Multifactor i.e., Manulife Multifactor and First Trust go up and down completely randomly.

Pair Corralation between Manulife Multifactor and First Trust

Assuming the 90 days trading horizon Manulife Multifactor is expected to generate 10.59 times less return on investment than First Trust. But when comparing it to its historical volatility, Manulife Multifactor Mid is 1.61 times less risky than First Trust. It trades about 0.01 of its potential returns per unit of risk. First Trust SMID is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,092  in First Trust SMID on September 22, 2024 and sell it today you would earn a total of  111.00  from holding First Trust SMID or generate 5.31% return on investment over 90 days.

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

Manulife Multifactor Mid  vs.  First Trust SMID

Manulife Multifactor Mid

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Manulife Multifactor Mid has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Manulife Multifactor is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

First Trust SMID

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust SMID are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, First Trust is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Manulife Multifactor and First Trust

The main advantage of trading using opposite Manulife Multifactor and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Manulife Multifactor 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 Manulife Multifactor Mid and First Trust SMID 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.