Correlation Between Nuveen Municipal and First Trust

Can any of the company-specific risk be diversified away by investing in both Nuveen Municipal 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 Municipal 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 Municipal Credit and First Trust Mortgage, you can compare the effects of market volatilities on Nuveen Municipal 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 Municipal with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nuveen Municipal and First Trust.

Diversification Opportunities for Nuveen Municipal and First Trust

0.59

Correlation Coefficient

Nuveen Municipal  First Trust

Very weak diversification

The 3 months correlation between Nuveen and First is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Nuveen Municipal Credit and First Trust Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Mortgage and Nuveen Municipal 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 Municipal Credit 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 Mortgage has no effect on the direction of Nuveen Municipal i.e., Nuveen Municipal and First Trust go up and down completely randomly.

Pair Corralation between Nuveen Municipal and First Trust

Considering the 90-day investment horizon Nuveen Municipal is expected to generate 3.5 times less return on investment than First Trust. But when comparing it to its historical volatility, Nuveen Municipal Credit is 1.29 times less risky than First Trust. It trades about 0.04 of its potential returns per unit of risk. First Trust Mortgage is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,167  in First Trust Mortgage on December 27, 2024 and sell it today you would earn a total of  51.00  from holding First Trust Mortgage or generate 4.37% return on investment over 90 days.

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

Nuveen Municipal Credit  vs.  First Trust Mortgage

Nuveen Municipal Credit

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nuveen Municipal Credit are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. Despite nearly stable basic indicators, Nuveen Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

First Trust Mortgage

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Mortgage are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, First Trust is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nuveen Municipal and First Trust

The main advantage of trading using opposite Nuveen Municipal and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nuveen Municipal 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 Municipal Credit and First Trust Mortgage 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.