Correlation Between Themes Transatlantic and First Trust

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

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

Diversification Opportunities for Themes Transatlantic and First Trust

-0.2

Correlation Coefficient

Themes Transatlantic  First Trust

Good diversification

The 3 months correlation between Themes and First is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Themes Transatlantic Defense and First Trust Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Water and Themes Transatlantic 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 Themes Transatlantic Defense 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 Water has no effect on the direction of Themes Transatlantic i.e., Themes Transatlantic and First Trust go up and down completely randomly.

Pair Corralation between Themes Transatlantic and First Trust

Given the investment horizon of 90 days Themes Transatlantic Defense is expected to generate 1.45 times more return on investment than First Trust. However, Themes Transatlantic is 1.45 times more volatile than First Trust Water. It trades about 0.18 of its potential returns per unit of risk. First Trust Water is currently generating about -0.03 per unit of risk. If you would invest  2,591  in Themes Transatlantic Defense on December 26, 2024 and sell it today you would earn a total of  373.00  from holding Themes Transatlantic Defense or generate 14.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Themes Transatlantic Defense  vs.  First Trust Water

Themes Transatlantic

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Themes Transatlantic Defense are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Themes Transatlantic displayed solid returns over the last few months and may actually be approaching a breakup point.

First Trust Water

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Themes Transatlantic and First Trust

The main advantage of trading using opposite Themes Transatlantic and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Themes Transatlantic 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 Themes Transatlantic Defense and First Trust Water 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.