Correlation Between Federated Hermes and First Trust

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

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

Diversification Opportunities for Federated Hermes and First Trust

0.89

Correlation Coefficient

Federated Hermes  First Trust

Very poor diversification

The 3 months correlation between Federated and First is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Federated Hermes ETF 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 Federated Hermes 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 Federated Hermes ETF 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 Federated Hermes i.e., Federated Hermes and First Trust go up and down completely randomly.

Pair Corralation between Federated Hermes and First Trust

Given the investment horizon of 90 days Federated Hermes ETF is expected to generate 1.75 times more return on investment than First Trust. However, Federated Hermes is 1.75 times more volatile than First Trust Emerging. It trades about 0.27 of its potential returns per unit of risk. First Trust Emerging is currently generating about 0.1 per unit of risk. If you would invest  2,686  in Federated Hermes ETF on May 2, 2025 and sell it today you would earn a total of  440.00  from holding Federated Hermes ETF or generate 16.38% return on investment over 90 days.

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

Federated Hermes ETF  vs.  First Trust Emerging

Federated Hermes ETF

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Hermes ETF are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Federated Hermes reported solid returns over the last few months and may actually be approaching a breakup point.

First Trust Emerging

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Emerging are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. 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 Federated Hermes and First Trust

The main advantage of trading using opposite Federated Hermes and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federated Hermes 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 Federated Hermes ETF 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.