Correlation Between VictoryShares USAA and First Trust

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

Diversification Opportunities for VictoryShares USAA and First Trust

0.99
  Correlation Coefficient

No risk reduction

The 3 months correlation between VictoryShares and First is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding VictoryShares USAA Core and First Trust TCW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust TCW and VictoryShares USAA 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 VictoryShares USAA Core 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 TCW has no effect on the direction of VictoryShares USAA i.e., VictoryShares USAA and First Trust go up and down completely randomly.

Pair Corralation between VictoryShares USAA and First Trust

Given the investment horizon of 90 days VictoryShares USAA Core is expected to generate 0.8 times more return on investment than First Trust. However, VictoryShares USAA Core is 1.25 times less risky than First Trust. It trades about 0.27 of its potential returns per unit of risk. First Trust TCW is currently generating about 0.16 per unit of risk. If you would invest  4,579  in VictoryShares USAA Core on December 29, 2023 and sell it today you would earn a total of  61.00  from holding VictoryShares USAA Core or generate 1.33% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy95.65%
ValuesDaily Returns

VictoryShares USAA Core  vs.  First Trust TCW

 Performance 
       Timeline  
VictoryShares USAA Core 

Risk-Adjusted Performance

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High
Very Weak
Over the last 90 days VictoryShares USAA Core has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, VictoryShares USAA is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
First Trust TCW 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days First Trust TCW has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

VictoryShares USAA and First Trust Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with VictoryShares USAA and First Trust

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

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