Correlation Between RiverFront Strategic and First Trust

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

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

Diversification Opportunities for RiverFront Strategic and First Trust

0.32

Correlation Coefficient

RiverFront Strategic  First Trust

Weak diversification

The 3 months correlation between RiverFront and First is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding RiverFront Strategic Income and First Trust RiverFront in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust RiverFront and RiverFront Strategic 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 RiverFront Strategic Income 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 RiverFront has no effect on the direction of RiverFront Strategic i.e., RiverFront Strategic and First Trust go up and down completely randomly.

Pair Corralation between RiverFront Strategic and First Trust

Given the investment horizon of 90 days RiverFront Strategic is expected to generate 3.46 times less return on investment than First Trust. But when comparing it to its historical volatility, RiverFront Strategic Income is 2.3 times less risky than First Trust. It trades about 0.05 of its potential returns per unit of risk. First Trust RiverFront is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  5,018  in First Trust RiverFront on September 14, 2024 and sell it today you would earn a total of  1,570  from holding First Trust RiverFront or generate 31.29% return on investment over 90 days.

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

RiverFront Strategic Income  vs.  First Trust RiverFront

RiverFront Strategic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RiverFront Strategic Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, RiverFront Strategic is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

First Trust RiverFront

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust RiverFront are ranked lower than 1 (%) 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.

Pair Trading with RiverFront Strategic and First Trust

The main advantage of trading using opposite RiverFront Strategic and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RiverFront Strategic 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 RiverFront Strategic Income and First Trust RiverFront 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.