Correlation Between First Trust and Franklin FTSE

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

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

Diversification Opportunities for First Trust and Franklin FTSE

0.98

Correlation Coefficient

First Trust  Franklin FTSE

Almost no diversification

The 3 months correlation between First and Franklin is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding First Trust India and Franklin FTSE India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin FTSE India 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 India are associated (or correlated) with Franklin FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin FTSE India has no effect on the direction of First Trust i.e., First Trust and Franklin FTSE go up and down completely randomly.

Pair Corralation between First Trust and Franklin FTSE

Given the investment horizon of 90 days First Trust India is expected to generate 1.06 times more return on investment than Franklin FTSE. However, First Trust is 1.06 times more volatile than Franklin FTSE India. It trades about -0.07 of its potential returns per unit of risk. Franklin FTSE India is currently generating about -0.11 per unit of risk. If you would invest  5,687  in First Trust India on December 20, 2024 and sell it today you would lose (222.00) from holding First Trust India or give up 3.9% of portfolio value over 90 days.

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

First Trust India  vs.  Franklin FTSE India

First Trust India

Risk-Adjusted Performance

Very Weak

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

Franklin FTSE India

Risk-Adjusted Performance

Very Weak

Over the last 90 days Franklin FTSE India has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Etf's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with First Trust and Franklin FTSE

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

The idea behind First Trust India and Franklin FTSE India 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.