Correlation Between First Trust and American Beacon

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

By analyzing existing cross correlation between First Trust Exchange Traded and American Beacon GLG, you can compare the effects of market volatilities on First Trust and American Beacon 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 American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and American Beacon.

Diversification Opportunities for First Trust and American Beacon

-0.44

Correlation Coefficient

First Trust  American Beacon

Very good diversification

The 3 months correlation between First and American is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and American Beacon GLG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon GLG 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 Exchange Traded are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon GLG has no effect on the direction of First Trust i.e., First Trust and American Beacon go up and down completely randomly.

Pair Corralation between First Trust and American Beacon

Given the investment horizon of 90 days First Trust Exchange Traded is expected to under-perform the American Beacon. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Exchange Traded is 1.45 times less risky than American Beacon. The etf trades about -0.08 of its potential returns per unit of risk. The American Beacon GLG is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,630  in American Beacon GLG on March 12, 2024 and sell it today you would earn a total of  373.00  from holding American Beacon GLG or generate 14.18% return on investment over 90 days.

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

First Trust Exchange Traded  vs.  American Beacon GLG

First Trust Exchange

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Exchange Traded has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

American Beacon GLG

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Beacon GLG are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, American Beacon reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and American Beacon

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

The idea behind First Trust Exchange Traded and American Beacon GLG 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.