Correlation Between Investment Managers and First Trust

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

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

Diversification Opportunities for Investment Managers and First Trust

0.71

Correlation Coefficient

Investment Managers  First Trust

Poor diversification

The 3 months correlation between Investment and First is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Investment Managers Series and First Trust Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Income and Investment Managers 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 Investment Managers Series 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 Income has no effect on the direction of Investment Managers i.e., Investment Managers and First Trust go up and down completely randomly.

Pair Corralation between Investment Managers and First Trust

Considering the 90-day investment horizon Investment Managers Series is expected to under-perform the First Trust. In addition to that, Investment Managers is 1.96 times more volatile than First Trust Income. It trades about -0.07 of its total potential returns per unit of risk. First Trust Income is currently generating about -0.01 per unit of volatility. If you would invest  2,212  in First Trust Income on December 1, 2024 and sell it today you would lose (6.00) from holding First Trust Income or give up 0.27% of portfolio value over 90 days.

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

Investment Managers Series  vs.  First Trust Income

Investment Managers

Risk-Adjusted Performance

Very Weak

Over the last 90 days Investment Managers Series has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Investment Managers is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

First Trust Income

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Investment Managers and First Trust

The main advantage of trading using opposite Investment Managers and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Investment Managers 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 Investment Managers Series and First Trust Income 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.