Correlation Between Cabana Target and First Trust

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

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

Diversification Opportunities for Cabana Target and First Trust

0.53

Correlation Coefficient

Cabana Target  First Trust

Very weak diversification

The 3 months correlation between Cabana and First is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Cabana Target Drawdown and First Trust Dorsey in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Dorsey and Cabana Target 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 Cabana Target Drawdown 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 Dorsey has no effect on the direction of Cabana Target i.e., Cabana Target and First Trust go up and down completely randomly.

Pair Corralation between Cabana Target and First Trust

Given the investment horizon of 90 days Cabana Target Drawdown is expected to generate 0.92 times more return on investment than First Trust. However, Cabana Target Drawdown is 1.09 times less risky than First Trust. It trades about 0.04 of its potential returns per unit of risk. First Trust Dorsey is currently generating about -0.05 per unit of risk. If you would invest  2,464  in Cabana Target Drawdown on December 27, 2024 and sell it today you would earn a total of  42.00  from holding Cabana Target Drawdown or generate 1.7% return on investment over 90 days.

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

Cabana Target Drawdown  vs.  First Trust Dorsey

Cabana Target Drawdown

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cabana Target Drawdown are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Cabana Target is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

First Trust Dorsey

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Dorsey has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Cabana Target and First Trust

The main advantage of trading using opposite Cabana Target and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cabana Target 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 Cabana Target Drawdown and First Trust Dorsey 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.