Correlation Between Ballast SmallMid and First Trust

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

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

Diversification Opportunities for Ballast SmallMid and First Trust

0.78

Correlation Coefficient

Ballast SmallMid  First Trust

Poor diversification

The 3 months correlation between Ballast and First is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Ballast SmallMid Cap and First Trust Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Japan and Ballast SmallMid 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 Ballast SmallMid Cap 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 Japan has no effect on the direction of Ballast SmallMid i.e., Ballast SmallMid and First Trust go up and down completely randomly.

Pair Corralation between Ballast SmallMid and First Trust

Given the investment horizon of 90 days Ballast SmallMid Cap is expected to generate 0.81 times more return on investment than First Trust. However, Ballast SmallMid Cap is 1.24 times less risky than First Trust. It trades about -0.15 of its potential returns per unit of risk. First Trust Japan is currently generating about -0.15 per unit of risk. If you would invest  3,753  in Ballast SmallMid Cap on January 29, 2024 and sell it today you would lose (105.00) from holding Ballast SmallMid Cap or give up 2.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Ballast SmallMid Cap  vs.  First Trust Japan

Ballast SmallMid Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ballast SmallMid Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Ballast SmallMid is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

First Trust Japan

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Japan are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward-looking indicators, First Trust is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Ballast SmallMid and First Trust

The main advantage of trading using opposite Ballast SmallMid and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ballast SmallMid 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 Ballast SmallMid Cap and First Trust Japan 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.