Correlation Between DXP Enterprises and First Trust

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

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

Diversification Opportunities for DXP Enterprises and First Trust

0.27

Correlation Coefficient

DXP Enterprises  First Trust

Modest diversification

The 3 months correlation between DXP and First is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding DXP Enterprises and First Trust Flexible in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Flexible and DXP Enterprises 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 DXP Enterprises 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 Flexible has no effect on the direction of DXP Enterprises i.e., DXP Enterprises and First Trust go up and down completely randomly.

Pair Corralation between DXP Enterprises and First Trust

Given the investment horizon of 90 days DXP Enterprises is expected to generate 3.55 times more return on investment than First Trust. However, DXP Enterprises is 3.55 times more volatile than First Trust Flexible. It trades about 0.1 of its potential returns per unit of risk. First Trust Flexible is currently generating about 0.04 per unit of risk. If you would invest  2,694  in DXP Enterprises on September 18, 2024 and sell it today you would earn a total of  5,350  from holding DXP Enterprises or generate 198.59% return on investment over 90 days.

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

DXP Enterprises  vs.  First Trust Flexible

DXP Enterprises

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DXP Enterprises are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, DXP Enterprises exhibited solid returns over the last few months and may actually be approaching a breakup point.

First Trust Flexible

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Flexible has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, First Trust is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with DXP Enterprises and First Trust

The main advantage of trading using opposite DXP Enterprises and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DXP Enterprises 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 DXP Enterprises and First Trust Flexible 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.