Correlation Between First Trust and Principal Spectrum

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

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

Diversification Opportunities for First Trust and Principal Spectrum

0.99

Correlation Coefficient

First Trust  Principal Spectrum

No risk reduction

The 3 months correlation between First and Principal is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Institutional and Principal Spectrum Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Spectrum 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 Institutional are associated (or correlated) with Principal Spectrum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Spectrum has no effect on the direction of First Trust i.e., First Trust and Principal Spectrum go up and down completely randomly.

Pair Corralation between First Trust and Principal Spectrum

Given the investment horizon of 90 days First Trust Institutional is expected to generate 1.27 times more return on investment than Principal Spectrum. However, First Trust is 1.27 times more volatile than Principal Spectrum Preferred. It trades about 0.4 of its potential returns per unit of risk. Principal Spectrum Preferred is currently generating about 0.36 per unit of risk. If you would invest  1,814  in First Trust Institutional on April 29, 2025 and sell it today you would earn a total of  84.00  from holding First Trust Institutional or generate 4.63% return on investment over 90 days.

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

First Trust Institutional  vs.  Principal Spectrum Preferred

First Trust Institutional

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Institutional are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Principal Spectrum

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Spectrum Preferred are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Principal Spectrum is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with First Trust and Principal Spectrum

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

The idea behind First Trust Institutional and Principal Spectrum Preferred 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.