Correlation Between First Trust and 6 Meridian

Can any of the company-specific risk be diversified away by investing in both First Trust and 6 Meridian 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 6 Meridian 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 6 Meridian Low, you can compare the effects of market volatilities on First Trust and 6 Meridian 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 6 Meridian. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and 6 Meridian.

Diversification Opportunities for First Trust and 6 Meridian

0.81

Correlation Coefficient

First Trust  6 Meridian

Very poor diversification

The 3 months correlation between First and SIXL is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dorsey and 6 Meridian Low in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 6 Meridian Low 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 6 Meridian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 6 Meridian Low has no effect on the direction of First Trust i.e., First Trust and 6 Meridian go up and down completely randomly.

Pair Corralation between First Trust and 6 Meridian

Allowing for the 90-day total investment horizon First Trust is expected to generate 1.08 times less return on investment than 6 Meridian. In addition to that, First Trust is 1.46 times more volatile than 6 Meridian Low. It trades about 0.18 of its total potential returns per unit of risk. 6 Meridian Low is currently generating about 0.28 per unit of volatility. If you would invest  3,706  in 6 Meridian Low on August 26, 2024 and sell it today you would earn a total of  192.00  from holding 6 Meridian Low or generate 5.18% return on investment over 90 days.

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

First Trust Dorsey  vs.  6 Meridian Low

First Trust Dorsey

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Dorsey are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in December 2024.

6 Meridian Low

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in 6 Meridian Low are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, 6 Meridian is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with First Trust and 6 Meridian

The main advantage of trading using opposite First Trust and 6 Meridian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, 6 Meridian 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 6 Meridian will offset losses from the drop in 6 Meridian's long position.

The idea behind First Trust Dorsey and 6 Meridian Low 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.