Correlation Between Ternium SA and First Trust

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

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

Diversification Opportunities for Ternium SA and First Trust

0.69

Correlation Coefficient

Ternium SA  First Trust

Poor diversification

The 3 months correlation between Ternium and First is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Ternium SA ADR and First Trust Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Exchange and Ternium SA 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 Ternium SA ADR 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 Exchange has no effect on the direction of Ternium SA i.e., Ternium SA and First Trust go up and down completely randomly.

Pair Corralation between Ternium SA and First Trust

Allowing for the 90-day total investment horizon Ternium SA ADR is expected to generate 10.2 times more return on investment than First Trust. However, Ternium SA is 10.2 times more volatile than First Trust Exchange Traded. It trades about 0.09 of its potential returns per unit of risk. First Trust Exchange Traded is currently generating about 0.35 per unit of risk. If you would invest  2,904  in Ternium SA ADR on December 26, 2024 and sell it today you would earn a total of  269.00  from holding Ternium SA ADR or generate 9.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	91.8%
Values	Daily Returns

Ternium SA ADR  vs.  First Trust Exchange Traded

Ternium SA ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ternium SA ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Ternium SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

First Trust Exchange

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 27 (%) 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 current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ternium SA and First Trust

The main advantage of trading using opposite Ternium SA and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ternium SA 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 Ternium SA ADR and First Trust Exchange Traded 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.