Correlation Between First Trust and RiverFront Dynamic

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

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

Diversification Opportunities for First Trust and RiverFront Dynamic

-0.47

Correlation Coefficient

First Trust  RiverFront Dynamic

Very good diversification

The 3 months correlation between First and RiverFront is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding First Trust RiverFront and RiverFront Dynamic Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RiverFront Dynamic and First Trust 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 First Trust RiverFront are associated (or correlated) with RiverFront Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RiverFront Dynamic has no effect on the direction of First Trust i.e., First Trust and RiverFront Dynamic go up and down completely randomly.

Pair Corralation between First Trust and RiverFront Dynamic

Given the investment horizon of 90 days First Trust RiverFront is expected to generate 0.98 times more return on investment than RiverFront Dynamic. However, First Trust RiverFront is 1.02 times less risky than RiverFront Dynamic. It trades about 0.05 of its potential returns per unit of risk. RiverFront Dynamic Dividend is currently generating about -0.08 per unit of risk. If you would invest  6,340  in First Trust RiverFront on December 29, 2024 and sell it today you would earn a total of  181.00  from holding First Trust RiverFront or generate 2.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

First Trust RiverFront  vs.  RiverFront Dynamic Dividend

First Trust RiverFront

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust RiverFront are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

RiverFront Dynamic

Risk-Adjusted Performance

Very Weak

Over the last 90 days RiverFront Dynamic Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, RiverFront Dynamic is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and RiverFront Dynamic

The main advantage of trading using opposite First Trust and RiverFront Dynamic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, RiverFront Dynamic 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 RiverFront Dynamic will offset losses from the drop in RiverFront Dynamic's long position.

The idea behind First Trust RiverFront and RiverFront Dynamic Dividend 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.