Correlation Between Vulcan Value and First Trust

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

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

Diversification Opportunities for Vulcan Value and First Trust

-0.5

Correlation Coefficient

Vulcan Value  First Trust

Very good diversification

The 3 months correlation between Vulcan and First is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Value Partners and First Trust Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Dow and Vulcan Value 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 Vulcan Value Partners 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 Dow has no effect on the direction of Vulcan Value i.e., Vulcan Value and First Trust go up and down completely randomly.

Pair Corralation between Vulcan Value and First Trust

Assuming the 90 days horizon Vulcan Value is expected to generate 13.89 times less return on investment than First Trust. But when comparing it to its historical volatility, Vulcan Value Partners is 1.33 times less risky than First Trust. It trades about 0.05 of its potential returns per unit of risk. First Trust Dow is currently generating about 0.47 of returns per unit of risk over similar time horizon. If you would invest  23,078  in First Trust Dow on September 16, 2024 and sell it today you would earn a total of  2,338  from holding First Trust Dow or generate 10.13% return on investment over 90 days.

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

Vulcan Value Partners  vs.  First Trust Dow

Vulcan Value Partners

Risk-Adjusted Performance

0 of 100

Very Weak

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

First Trust Dow

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Dow are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, First Trust displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vulcan Value and First Trust

The main advantage of trading using opposite Vulcan Value and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vulcan Value 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 Vulcan Value Partners and First Trust Dow 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.