Correlation Between Principal Exchange and First Trust

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

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

Diversification Opportunities for Principal Exchange and First Trust

0.79

Correlation Coefficient

Principal Exchange  First Trust

Poor diversification

The 3 months correlation between Principal and First is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Principal Exchange Traded Fund and First Trust Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Institutional and Principal Exchange 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 Principal Exchange Traded Funds 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 Institutional has no effect on the direction of Principal Exchange i.e., Principal Exchange and First Trust go up and down completely randomly.

Pair Corralation between Principal Exchange and First Trust

Given the investment horizon of 90 days Principal Exchange Traded Funds is expected to generate 0.91 times more return on investment than First Trust. However, Principal Exchange Traded Funds is 1.1 times less risky than First Trust. It trades about 0.12 of its potential returns per unit of risk. First Trust Institutional is currently generating about 0.1 per unit of risk. If you would invest  1,881  in Principal Exchange Traded Funds on December 29, 2024 and sell it today you would earn a total of  25.00  from holding Principal Exchange Traded Funds or generate 1.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Principal Exchange Traded Fund  vs.  First Trust Institutional

Principal Exchange

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Exchange Traded Funds are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, Principal Exchange is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

First Trust Institutional

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Institutional are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, First Trust is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Principal Exchange and First Trust

The main advantage of trading using opposite Principal Exchange and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal Exchange 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 Principal Exchange Traded Funds and First Trust Institutional 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.