Correlation Between First Trust and Tekla Healthcare

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

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

Diversification Opportunities for First Trust and Tekla Healthcare

-0.25

Correlation Coefficient

First Trust  Tekla Healthcare

Very good diversification

The 3 months correlation between First and Tekla is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Intermediate and Tekla Healthcare Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tekla Healthcare Inv 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 Intermediate are associated (or correlated) with Tekla Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tekla Healthcare Inv has no effect on the direction of First Trust i.e., First Trust and Tekla Healthcare go up and down completely randomly.

Pair Corralation between First Trust and Tekla Healthcare

Considering the 90-day investment horizon First Trust Intermediate is expected to generate 0.8 times more return on investment than Tekla Healthcare. However, First Trust Intermediate is 1.25 times less risky than Tekla Healthcare. It trades about -0.28 of its potential returns per unit of risk. Tekla Healthcare Investors is currently generating about -0.24 per unit of risk. If you would invest  1,932  in First Trust Intermediate on August 17, 2024 and sell it today you would lose (72.00) from holding First Trust Intermediate or give up 3.73% of portfolio value over 90 days.

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

First Trust Intermediate  vs.  Tekla Healthcare Investors

First Trust Intermediate

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Intermediate are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. Despite nearly stable basic indicators, First Trust is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Tekla Healthcare Inv

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tekla Healthcare Investors has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Tekla Healthcare is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Trust and Tekla Healthcare

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

The idea behind First Trust Intermediate and Tekla Healthcare Investors 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.