Correlation Between Schwab Long and First Trust

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

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

Diversification Opportunities for Schwab Long and First Trust

0.99

Correlation Coefficient

Schwab Long  First Trust

No risk reduction

The 3 months correlation between Schwab and First is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Long Term Treasury and First Trust Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Long and Schwab Long 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 Schwab Long Term Treasury 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 Long has no effect on the direction of Schwab Long i.e., Schwab Long and First Trust go up and down completely randomly.

Pair Corralation between Schwab Long and First Trust

Given the investment horizon of 90 days Schwab Long is expected to generate 1.73 times less return on investment than First Trust. In addition to that, Schwab Long is 1.4 times more volatile than First Trust Long. It trades about 0.04 of its total potential returns per unit of risk. First Trust Long is currently generating about 0.1 per unit of volatility. If you would invest  2,096  in First Trust Long on September 19, 2024 and sell it today you would earn a total of  24.00  from holding First Trust Long or generate 1.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Schwab Long Term Treasury  vs.  First Trust Long

Schwab Long Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab Long Term Treasury has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Etf's technical indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

First Trust Long

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Schwab Long and First Trust

The main advantage of trading using opposite Schwab Long and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Long 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 Schwab Long Term Treasury and First Trust Long 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.