Correlation Between IPC MEXICO and First Trust

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

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

Diversification Opportunities for IPC MEXICO and First Trust

-0.17

Correlation Coefficient

IPC MEXICO  First Trust

Good diversification

The 3 months correlation between IPC and First is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding IPC MEXICO and First Trust Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Exchange and IPC MEXICO 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 IPC MEXICO 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 Exchange has no effect on the direction of IPC MEXICO i.e., IPC MEXICO and First Trust go up and down completely randomly.

Pair Corralation between IPC MEXICO and First Trust

Assuming the 90 days trading horizon IPC MEXICO is expected to under-perform the First Trust. But the index apears to be less risky and, when comparing its historical volatility, IPC MEXICO is 1.43 times less risky than First Trust. The index trades about -0.02 of its potential returns per unit of risk. The First Trust Exchange Traded is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  210,288  in First Trust Exchange Traded on October 23, 2024 and sell it today you would earn a total of  194,712  from holding First Trust Exchange Traded or generate 92.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.62%
Values	Daily Returns

IPC MEXICO  vs.  First Trust Exchange Traded

Pair Trading with IPC MEXICO and First Trust

The main advantage of trading using opposite IPC MEXICO and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IPC MEXICO 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 IPC MEXICO and First Trust Exchange Traded 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.

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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.