Correlation Between First Trust and Pacer Lunt

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

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

Diversification Opportunities for First Trust and Pacer Lunt

0.73

Correlation Coefficient

First Trust  Pacer Lunt

Poor diversification

The 3 months correlation between First and Pacer is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding First Trust SMID and Pacer Lunt Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Lunt Large 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 SMID are associated (or correlated) with Pacer Lunt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Lunt Large has no effect on the direction of First Trust i.e., First Trust and Pacer Lunt go up and down completely randomly.

Pair Corralation between First Trust and Pacer Lunt

Given the investment horizon of 90 days First Trust is expected to generate 1.03 times less return on investment than Pacer Lunt. In addition to that, First Trust is 1.4 times more volatile than Pacer Lunt Large. It trades about 0.07 of its total potential returns per unit of risk. Pacer Lunt Large is currently generating about 0.11 per unit of volatility. If you would invest  4,804  in Pacer Lunt Large on May 25, 2025 and sell it today you would earn a total of  204.00  from holding Pacer Lunt Large or generate 4.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

First Trust SMID  vs.  Pacer Lunt Large

First Trust SMID

Risk-Adjusted Performance

Mild

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

Pacer Lunt Large

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Pacer Lunt Large are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Pacer Lunt is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Trust and Pacer Lunt

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

The idea behind First Trust SMID and Pacer Lunt Large 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.