Correlation Between First Trust and Pacer Benchmark

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

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

Diversification Opportunities for First Trust and Pacer Benchmark

0.79

Correlation Coefficient

First Trust  Pacer Benchmark

Poor diversification

The 3 months correlation between First and Pacer is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding First Trust NASDAQ and Pacer Benchmark Data in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Benchmark Data 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 NASDAQ are associated (or correlated) with Pacer Benchmark. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Benchmark Data has no effect on the direction of First Trust i.e., First Trust and Pacer Benchmark go up and down completely randomly.

Pair Corralation between First Trust and Pacer Benchmark

Given the investment horizon of 90 days First Trust NASDAQ is expected to generate 0.82 times more return on investment than Pacer Benchmark. However, First Trust NASDAQ is 1.22 times less risky than Pacer Benchmark. It trades about 0.01 of its potential returns per unit of risk. Pacer Benchmark Data is currently generating about 0.0 per unit of risk. If you would invest  8,620  in First Trust NASDAQ on December 27, 2024 and sell it today you would earn a total of  22.00  from holding First Trust NASDAQ or generate 0.26% return on investment over 90 days.

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

First Trust NASDAQ  vs.  Pacer Benchmark Data

First Trust NASDAQ

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust NASDAQ has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, First Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pacer Benchmark Data

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pacer Benchmark Data has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Pacer Benchmark is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with First Trust and Pacer Benchmark

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

The idea behind First Trust NASDAQ and Pacer Benchmark Data 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.