Correlation Between IQ Hedge and First Trust

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

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

Diversification Opportunities for IQ Hedge and First Trust

0.75

Correlation Coefficient

IQ Hedge  First Trust

Poor diversification

The 3 months correlation between QAI and First is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding IQ Hedge Multi Strategy and First Trust LongShort in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust LongShort and IQ Hedge 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 IQ Hedge Multi Strategy 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 LongShort has no effect on the direction of IQ Hedge i.e., IQ Hedge and First Trust go up and down completely randomly.

Pair Corralation between IQ Hedge and First Trust

Considering the 90-day investment horizon IQ Hedge Multi Strategy is expected to generate 0.53 times more return on investment than First Trust. However, IQ Hedge Multi Strategy is 1.9 times less risky than First Trust. It trades about 0.02 of its potential returns per unit of risk. First Trust LongShort is currently generating about -0.08 per unit of risk. If you would invest  3,146  in IQ Hedge Multi Strategy on December 27, 2024 and sell it today you would earn a total of  11.00  from holding IQ Hedge Multi Strategy or generate 0.35% return on investment over 90 days.

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

IQ Hedge Multi Strategy  vs.  First Trust LongShort

IQ Hedge Multi

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in IQ Hedge Multi Strategy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, IQ Hedge is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

First Trust LongShort

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust LongShort has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, First Trust is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IQ Hedge and First Trust

The main advantage of trading using opposite IQ Hedge and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IQ Hedge 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 IQ Hedge Multi Strategy and First Trust LongShort 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.