Correlation Between Adams Natural and First Trust

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

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

Diversification Opportunities for Adams Natural and First Trust

-0.63

Correlation Coefficient

Adams Natural  First Trust

Excellent diversification

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

Pair Corralation between Adams Natural and First Trust

Considering the 90-day investment horizon Adams Natural is expected to generate 1.45 times less return on investment than First Trust. But when comparing it to its historical volatility, Adams Natural Resources is 1.06 times less risky than First Trust. It trades about 0.03 of its potential returns per unit of risk. First Trust New is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  612.00  in First Trust New on September 25, 2024 and sell it today you would earn a total of  26.00  from holding First Trust New or generate 4.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	24.84%
Values	Daily Returns

Adams Natural Resources  vs.  First Trust New

Adams Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adams Natural Resources has generated negative risk-adjusted returns adding no value to fund investors. In spite of very healthy technical and fundamental indicators, Adams Natural is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

First Trust New

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust New has generated negative risk-adjusted returns adding no value to fund investors. Despite quite persistent basic indicators, First Trust is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Adams Natural and First Trust

The main advantage of trading using opposite Adams Natural and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adams Natural 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 Adams Natural Resources and First Trust New 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.