Correlation Between Overlay Shares and First Trust

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

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

Diversification Opportunities for Overlay Shares and First Trust

-0.54

Correlation Coefficient

Overlay Shares  First Trust

Excellent diversification

The 3 months correlation between Overlay and First is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Overlay Shares Foreign and First Trust Vivaldi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Vivaldi and Overlay Shares 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 Overlay Shares Foreign 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 Vivaldi has no effect on the direction of Overlay Shares i.e., Overlay Shares and First Trust go up and down completely randomly.

Pair Corralation between Overlay Shares and First Trust

Considering the 90-day investment horizon Overlay Shares Foreign is expected to generate 3.8 times more return on investment than First Trust. However, Overlay Shares is 3.8 times more volatile than First Trust Vivaldi. It trades about 0.05 of its potential returns per unit of risk. First Trust Vivaldi is currently generating about 0.03 per unit of risk. If you would invest  2,014  in Overlay Shares Foreign on October 25, 2024 and sell it today you would earn a total of  431.00  from holding Overlay Shares Foreign or generate 21.4% return on investment over 90 days.

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

Overlay Shares Foreign  vs.  First Trust Vivaldi

Overlay Shares Foreign

Risk-Adjusted Performance

0 of 100

Very Weak

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

First Trust Vivaldi

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Vivaldi are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, First Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Overlay Shares and First Trust

The main advantage of trading using opposite Overlay Shares and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Overlay Shares 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 Overlay Shares Foreign and First Trust Vivaldi 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.

Check out your portfolio center.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.