Correlation Between FlexShares Credit and First Trust

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

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

Diversification Opportunities for FlexShares Credit and First Trust

0.8

Correlation Coefficient

FlexShares Credit  First Trust

Very poor diversification

The 3 months correlation between FlexShares and First is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares Credit Scored Long and First Trust Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Emerging and FlexShares Credit 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 FlexShares Credit Scored Long 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 Emerging has no effect on the direction of FlexShares Credit i.e., FlexShares Credit and First Trust go up and down completely randomly.

Pair Corralation between FlexShares Credit and First Trust

Given the investment horizon of 90 days FlexShares Credit is expected to generate 1.03 times less return on investment than First Trust. In addition to that, FlexShares Credit is 1.12 times more volatile than First Trust Emerging. It trades about 0.04 of its total potential returns per unit of risk. First Trust Emerging is currently generating about 0.04 per unit of volatility. If you would invest  2,609  in First Trust Emerging on September 15, 2024 and sell it today you would earn a total of  72.00  from holding First Trust Emerging or generate 2.76% return on investment over 90 days.

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

FlexShares Credit Scored Long  vs.  First Trust Emerging

FlexShares Credit

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares Credit Scored Long has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, FlexShares Credit is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

First Trust Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, First Trust is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with FlexShares Credit and First Trust

The main advantage of trading using opposite FlexShares Credit and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares Credit 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 FlexShares Credit Scored Long and First Trust Emerging 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.