Correlation Between First Trust and United States

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

By analyzing existing cross correlation between First Trust Exchange Traded and United States Steel, you can compare the effects of market volatilities on First Trust and United States 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 United States. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and United States.

Diversification Opportunities for First Trust and United States

0.26

Correlation Coefficient

First Trust  United States

Modest diversification

The 3 months correlation between First and United is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and United States Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Steel 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 Exchange Traded are associated (or correlated) with United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Steel has no effect on the direction of First Trust i.e., First Trust and United States go up and down completely randomly.

Pair Corralation between First Trust and United States

Given the investment horizon of 90 days First Trust is expected to generate 4.31 times less return on investment than United States. But when comparing it to its historical volatility, First Trust Exchange Traded is 18.34 times less risky than United States. It trades about 0.28 of its potential returns per unit of risk. United States Steel is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,119  in United States Steel on December 5, 2024 and sell it today you would earn a total of  651.00  from holding United States Steel or generate 20.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	76.23%
Values	Daily Returns

First Trust Exchange Traded  vs.  United States Steel

First Trust Exchange

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, First Trust is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

United States Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, United States 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 United States

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

The idea behind First Trust Exchange Traded and United States Steel 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.