Correlation Between Large Cap and First Trust

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

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

Diversification Opportunities for Large Cap and First Trust

0.67

Correlation Coefficient

Large Cap  First Trust

Poor diversification

The 3 months correlation between Large and First is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and First Trust Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Short and Large Cap 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 Large Cap Growth Profund 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 Short has no effect on the direction of Large Cap i.e., Large Cap and First Trust go up and down completely randomly.

Pair Corralation between Large Cap and First Trust

Assuming the 90 days horizon Large Cap Growth Profund is expected to generate 6.44 times more return on investment than First Trust. However, Large Cap is 6.44 times more volatile than First Trust Short. It trades about 0.31 of its potential returns per unit of risk. First Trust Short is currently generating about 0.29 per unit of risk. If you would invest  4,328  in Large Cap Growth Profund on May 4, 2025 and sell it today you would earn a total of  745.00  from holding Large Cap Growth Profund or generate 17.21% return on investment over 90 days.

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

Large Cap Growth Profund  vs.  First Trust Short

Large Cap Growth

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Growth Profund are ranked lower than 24 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Large Cap showed solid returns over the last few months and may actually be approaching a breakup point.

First Trust Short

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Short are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, First Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Large Cap and First Trust

The main advantage of trading using opposite Large Cap and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Cap 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 Large Cap Growth Profund and First Trust Short 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.