Correlation Between Tekla World and First Trust

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

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

Diversification Opportunities for Tekla World and First Trust

0.83

Correlation Coefficient

Tekla World  First Trust

Very poor diversification

The 3 months correlation between Tekla and First is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Tekla World Healthcare and First Trust Intermediate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Intermediate and Tekla World 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 Tekla World Healthcare 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 Intermediate has no effect on the direction of Tekla World i.e., Tekla World and First Trust go up and down completely randomly.

Pair Corralation between Tekla World and First Trust

Considering the 90-day investment horizon Tekla World Healthcare is expected to under-perform the First Trust. In addition to that, Tekla World is 1.55 times more volatile than First Trust Intermediate. It trades about -0.36 of its total potential returns per unit of risk. First Trust Intermediate is currently generating about -0.33 per unit of volatility. If you would invest  1,867  in First Trust Intermediate on September 24, 2024 and sell it today you would lose (68.00) from holding First Trust Intermediate or give up 3.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

Tekla World Healthcare  vs.  First Trust Intermediate

Tekla World Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tekla World Healthcare has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the fund sophisticated investors.

First Trust Intermediate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Intermediate has generated negative risk-adjusted returns adding no value to fund investors. Despite nearly stable basic indicators, First Trust is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tekla World and First Trust

The main advantage of trading using opposite Tekla World and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tekla World 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 Tekla World Healthcare and First Trust Intermediate 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.