Correlation Between TRON and First Trust

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

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

Diversification Opportunities for TRON and First Trust

-0.54

Correlation Coefficient

TRON  First Trust

Excellent diversification

The 3 months correlation between TRON and First is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding TRON and First Trust FTSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust FTSE and TRON 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 TRON 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 FTSE has no effect on the direction of TRON i.e., TRON and First Trust go up and down completely randomly.

Pair Corralation between TRON and First Trust

Assuming the 90 days trading horizon TRON is expected to generate 30.64 times more return on investment than First Trust. However, TRON is 30.64 times more volatile than First Trust FTSE. It trades about 0.09 of its potential returns per unit of risk. First Trust FTSE is currently generating about -0.05 per unit of risk. If you would invest  6.01  in TRON on October 9, 2024 and sell it today you would earn a total of  20.99  from holding TRON or generate 349.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	60.24%
Values	Daily Returns

TRON  vs.  First Trust FTSE

TRON

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TRON are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, TRON exhibited solid returns over the last few months and may actually be approaching a breakup point.

First Trust FTSE

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with TRON and First Trust

The main advantage of trading using opposite TRON and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TRON 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 TRON and First Trust FTSE 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.