Correlation Between Princeton Capital and First Trust

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

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

Diversification Opportunities for Princeton Capital and First Trust

0.02

Correlation Coefficient

Princeton Capital  First Trust

Significant diversification

The 3 months correlation between Princeton and First is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Princeton Capital and First Trust High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust High and Princeton Capital 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 Princeton Capital 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 High has no effect on the direction of Princeton Capital i.e., Princeton Capital and First Trust go up and down completely randomly.

Pair Corralation between Princeton Capital and First Trust

Given the investment horizon of 90 days Princeton Capital is expected to generate 17.07 times more return on investment than First Trust. However, Princeton Capital is 17.07 times more volatile than First Trust High. It trades about 0.01 of its potential returns per unit of risk. First Trust High is currently generating about 0.07 per unit of risk. If you would invest  12.00  in Princeton Capital on December 28, 2024 and sell it today you would lose (1.00) from holding Princeton Capital or give up 8.33% of portfolio value over 90 days.

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

Princeton Capital  vs.  First Trust High

Princeton Capital

Risk-Adjusted Performance

Very Weak

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

First Trust High

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust High are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical 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 Princeton Capital and First Trust

The main advantage of trading using opposite Princeton Capital and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Princeton Capital 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 Princeton Capital and First Trust High 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 Global Correlations module to find global opportunities by holding instruments from different markets.