Correlation Between First Trust and VR

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

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

Diversification Opportunities for First Trust and VR

0.87

Correlation Coefficient

First Trust  VR

Very poor diversification

The 3 months correlation between First and VR is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Cloud and VR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VR 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 Cloud are associated (or correlated) with VR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VR has no effect on the direction of First Trust i.e., First Trust and VR go up and down completely randomly.

Pair Corralation between First Trust and VR

Given the investment horizon of 90 days First Trust is expected to generate 1.67 times less return on investment than VR. But when comparing it to its historical volatility, First Trust Cloud is 1.05 times less risky than VR. It trades about 0.11 of its potential returns per unit of risk. VR is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,795  in VR on September 28, 2024 and sell it today you would earn a total of  766.00  from holding VR or generate 42.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	27.62%
Values	Daily Returns

First Trust Cloud  vs.  VR

First Trust Cloud

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Cloud are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, First Trust showed solid returns over the last few months and may actually be approaching a breakup point.

VR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, VR is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with First Trust and VR

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

The idea behind First Trust Cloud and VR 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.