Can any of the company-specific risk be diversified away by investing in both First Trust and Virtus InfraCap 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 Virtus InfraCap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Low and Virtus InfraCap Preferred, you can compare the effects of market volatilities on First Trust and Virtus InfraCap 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 Virtus InfraCap. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Virtus InfraCap.
Diversification Opportunities for First Trust and Virtus InfraCap
The 24 months correlation between First and Virtus is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Low and Virtus InfraCap Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virtus InfraCap Preferred 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 Low are associated (or correlated) with Virtus InfraCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virtus InfraCap Preferred has no effect on the direction of First Trust i.e., First Trust and Virtus InfraCap go up and down completely randomly.
Pair Corralation between First Trust and Virtus InfraCap
Given the investment horizon of 90 days First Trust is expected to generate 3.33 times less return on investment than Virtus InfraCap. But when comparing it to its historical volatility, First Trust Low is 3.89 times less risky than Virtus InfraCap. It trades about 0.23 of its potential returns per unit of risk. Virtus InfraCap Preferred is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 2,071 in Virtus InfraCap Preferred on March 6, 2024 and sell it today you would earn a total of 54.50 from holding Virtus InfraCap Preferred or generate 2.63% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Low are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, First Trust is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Virtus InfraCap Preferred are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Virtus InfraCap is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.