Correlation Between First Trust and Merrill Lynch
Can any of the company-specific risk be diversified away by investing in both First Trust and Merrill Lynch 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 First Trust and Merrill Lynch into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Japan and Merrill Lynch Depositor, you can compare the effects of market volatilities on First Trust and Merrill Lynch 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 First Trust with a short position of Merrill Lynch. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Merrill Lynch.
Diversification Opportunities for First Trust and Merrill Lynch
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Merrill is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Japan and Merrill Lynch Depositor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merrill Lynch Depositor and First Trust 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 First Trust Japan are associated (or correlated) with Merrill Lynch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merrill Lynch Depositor has no effect on the direction of First Trust i.e., First Trust and Merrill Lynch go up and down completely randomly.
Pair Corralation between First Trust and Merrill Lynch
Considering the 90-day investment horizon First Trust Japan is expected to under-perform the Merrill Lynch. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Japan is 1.14 times less risky than Merrill Lynch. The etf trades about -0.23 of its potential returns per unit of risk. The Merrill Lynch Depositor is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest 2,550 in Merrill Lynch Depositor on January 21, 2024 and sell it today you would lose (45.00) from holding Merrill Lynch Depositor or give up 1.76% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Japan vs. Merrill Lynch Depositor
Performance |
| Timeline |
| First Trust Japan |
| Merrill Lynch Depositor |
First Trust and Merrill Lynch Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Merrill Lynch
The main advantage of trading using opposite First Trust and Merrill Lynch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Merrill Lynch 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 Merrill Lynch will offset losses from the drop in Merrill Lynch's long position.| First Trust vs. iShares MSCI South | First Trust vs. iShares MSCI Hong | First Trust vs. iShares MSCI Taiwan | First Trust vs. iShares MSCI Germany |
| Merrill Lynch vs. CMS Energy Corp | Merrill Lynch vs. Southern Co | Merrill Lynch vs. Duke Energy Corp | Merrill Lynch vs. Southern Co |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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