Correlation Between Ready Capital and First Trust

Can any of the company-specific risk be diversified away by investing in both Ready 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 Ready 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 Ready Capital and First Trust Nasdaq, you can compare the effects of market volatilities on Ready 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 Ready Capital with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ready Capital and First Trust.

Diversification Opportunities for Ready Capital and First Trust

0.03

Correlation Coefficient

Ready Capital  First Trust

Significant diversification

The 3 months correlation between Ready and First is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Ready Capital and First Trust Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Nasdaq and Ready 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 Ready 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 Nasdaq has no effect on the direction of Ready Capital i.e., Ready Capital and First Trust go up and down completely randomly.

Pair Corralation between Ready Capital and First Trust

Considering the 90-day investment horizon Ready Capital is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, Ready Capital is 2.86 times less risky than First Trust. The etf trades about -0.12 of its potential returns per unit of risk. The First Trust Nasdaq is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  3,207  in First Trust Nasdaq on December 27, 2024 and sell it today you would lose (91.00) from holding First Trust Nasdaq or give up 2.84% of portfolio value over 90 days.

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

Ready Capital  vs.  First Trust Nasdaq

Ready Capital

Risk-Adjusted Performance

Very Weak

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

First Trust Nasdaq

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Nasdaq has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ready Capital and First Trust

The main advantage of trading using opposite Ready Capital and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ready 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 Ready Capital and First Trust Nasdaq 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.