Correlation Between First Trust and Freedom Day

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

By analyzing existing cross correlation between First Trust Preferred and Freedom Day Dividend, you can compare the effects of market volatilities on First Trust and Freedom Day 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 Freedom Day. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Freedom Day.

Diversification Opportunities for First Trust and Freedom Day

0.91

Correlation Coefficient

First Trust  Freedom Day

Almost no diversification

The 3 months correlation between First and Freedom is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Preferred and Freedom Day Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freedom Day Dividend 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 Preferred are associated (or correlated) with Freedom Day. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freedom Day Dividend has no effect on the direction of First Trust i.e., First Trust and Freedom Day go up and down completely randomly.

Pair Corralation between First Trust and Freedom Day

Considering the 90-day investment horizon First Trust is expected to generate 14.06 times less return on investment than Freedom Day. But when comparing it to its historical volatility, First Trust Preferred is 2.39 times less risky than Freedom Day. It trades about 0.03 of its potential returns per unit of risk. Freedom Day Dividend is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,988  in Freedom Day Dividend on January 29, 2024 and sell it today you would earn a total of  128.00  from holding Freedom Day Dividend or generate 4.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	97.73%
Values	Daily Returns

First Trust Preferred  vs.  Freedom Day Dividend

First Trust Preferred

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Preferred are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Freedom Day Dividend

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Freedom Day Dividend are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Freedom Day may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with First Trust and Freedom Day

The main advantage of trading using opposite First Trust and Freedom Day positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Freedom Day 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 Freedom Day will offset losses from the drop in Freedom Day's long position.

The idea behind First Trust Preferred and Freedom Day Dividend 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.