Correlation Between Virtus InfraCap and First Trust

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

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

Diversification Opportunities for Virtus InfraCap and First Trust

0.58

Correlation Coefficient

Virtus InfraCap  First Trust

Very weak diversification

The 3 months correlation between Virtus and First is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Virtus InfraCap Preferred and First Trust SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust SP and Virtus InfraCap 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 Virtus InfraCap Preferred 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 SP has no effect on the direction of Virtus InfraCap i.e., Virtus InfraCap and First Trust go up and down completely randomly.

Pair Corralation between Virtus InfraCap and First Trust

Given the investment horizon of 90 days Virtus InfraCap Preferred is expected to generate 0.59 times more return on investment than First Trust. However, Virtus InfraCap Preferred is 1.68 times less risky than First Trust. It trades about 0.14 of its potential returns per unit of risk. First Trust SP is currently generating about 0.03 per unit of risk. If you would invest  1,649  in Virtus InfraCap Preferred on February 11, 2024 and sell it today you would earn a total of  433.00  from holding Virtus InfraCap Preferred or generate 26.26% return on investment over 90 days.

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

Virtus InfraCap Preferred  vs.  First Trust SP

Virtus InfraCap Preferred

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Virtus InfraCap Preferred are ranked lower than 4 (%) 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.

First Trust SP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust SP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, First Trust is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Virtus InfraCap and First Trust

The main advantage of trading using opposite Virtus InfraCap and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Virtus InfraCap 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 Virtus InfraCap Preferred and First Trust SP 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.