Correlation Between First Trust and JPMorgan BetaBuilders

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Can any of the company-specific risk be diversified away by investing in both First Trust and JPMorgan BetaBuilders 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 JPMorgan BetaBuilders into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Japan and JPMorgan BetaBuilders Japan, you can compare the effects of market volatilities on First Trust and JPMorgan BetaBuilders 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 JPMorgan BetaBuilders. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and JPMorgan BetaBuilders.

Diversification Opportunities for First Trust and JPMorgan BetaBuilders

0.97
  Correlation Coefficient

Almost no diversification

The 3 months correlation between First and JPMorgan is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Japan and JPMorgan BetaBuilders Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JPMorgan BetaBuilders 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 Japan are associated (or correlated) with JPMorgan BetaBuilders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JPMorgan BetaBuilders has no effect on the direction of First Trust i.e., First Trust and JPMorgan BetaBuilders go up and down completely randomly.

Pair Corralation between First Trust and JPMorgan BetaBuilders

Considering the 90-day investment horizon First Trust Japan is expected to generate 1.16 times more return on investment than JPMorgan BetaBuilders. However, First Trust is 1.16 times more volatile than JPMorgan BetaBuilders Japan. It trades about 0.05 of its potential returns per unit of risk. JPMorgan BetaBuilders Japan is currently generating about 0.05 per unit of risk. If you would invest  4,280  in First Trust Japan on December 30, 2023 and sell it today you would earn a total of  1,233  from holding First Trust Japan or generate 28.81% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

First Trust Japan  vs.  JPMorgan BetaBuilders Japan

 Performance 
       Timeline  
First Trust Japan 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Japan are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively sluggish forward-looking indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in April 2024.
JPMorgan BetaBuilders 

Risk-Adjusted Performance

18 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in JPMorgan BetaBuilders Japan are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively sluggish forward-looking indicators, JPMorgan BetaBuilders may actually be approaching a critical reversion point that can send shares even higher in April 2024.

First Trust and JPMorgan BetaBuilders Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with First Trust and JPMorgan BetaBuilders

The main advantage of trading using opposite First Trust and JPMorgan BetaBuilders positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, JPMorgan BetaBuilders 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 JPMorgan BetaBuilders will offset losses from the drop in JPMorgan BetaBuilders' long position.
The idea behind First Trust Japan and JPMorgan BetaBuilders 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.
Check out your portfolio center.
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.

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