Correlation Between First Trust and Principal Small

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

By analyzing existing cross correlation between First Trust Dorsey and Principal Small Cap Multi Factor, you can compare the effects of market volatilities on First Trust and Principal Small 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 Principal Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Principal Small.

Diversification Opportunities for First Trust and Principal Small

0.51

Correlation Coefficient

First Trust  Principal Small

Very weak diversification

The 3 months correlation between First and Principal is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dorsey and Principal Small Cap Multi Fact in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Small Cap 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 Dorsey are associated (or correlated) with Principal Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Small Cap has no effect on the direction of First Trust i.e., First Trust and Principal Small go up and down completely randomly.

Pair Corralation between First Trust and Principal Small

Given the investment horizon of 90 days First Trust is expected to generate 1.67 times less return on investment than Principal Small. But when comparing it to its historical volatility, First Trust Dorsey is 1.3 times less risky than Principal Small. It trades about 0.07 of its potential returns per unit of risk. Principal Small Cap Multi Factor is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  5,178  in Principal Small Cap Multi Factor on May 16, 2025 and sell it today you would earn a total of  325.00  from holding Principal Small Cap Multi Factor or generate 6.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

First Trust Dorsey  vs.  Principal Small Cap Multi Fact

First Trust Dorsey

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Dorsey are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, First Trust is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Principal Small Cap

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Small Cap Multi Factor are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Principal Small may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with First Trust and Principal Small

The main advantage of trading using opposite First Trust and Principal Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Principal Small 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 Principal Small will offset losses from the drop in Principal Small's long position.

The idea behind First Trust Dorsey and Principal Small Cap Multi Factor 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.