Correlation Between Nuveen Short and First Trust

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

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

Diversification Opportunities for Nuveen Short and First Trust

0.63

Correlation Coefficient

Nuveen Short  First Trust

Poor diversification

The 3 months correlation between Nuveen and First is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Nuveen Short Term REIT and First Trust SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust SP and Nuveen Short 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 Nuveen Short Term REIT 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 SP has no effect on the direction of Nuveen Short i.e., Nuveen Short and First Trust go up and down completely randomly.

Pair Corralation between Nuveen Short and First Trust

Given the investment horizon of 90 days Nuveen Short Term REIT is expected to under-perform the First Trust. In addition to that, Nuveen Short is 1.01 times more volatile than First Trust SP. It trades about -0.03 of its total potential returns per unit of risk. First Trust SP is currently generating about -0.02 per unit of volatility. If you would invest  2,752  in First Trust SP on December 25, 2024 and sell it today you would lose (43.00) from holding First Trust SP or give up 1.56% of portfolio value over 90 days.

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

Nuveen Short Term REIT  vs.  First Trust SP

Nuveen Short Term

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nuveen Short Term REIT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Nuveen Short is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

First Trust SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust SP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, First Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Nuveen Short and First Trust

The main advantage of trading using opposite Nuveen Short and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nuveen Short 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 Nuveen Short Term REIT and First Trust SP 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.