Correlation Between Fundamental Income and First Trust

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

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

Diversification Opportunities for Fundamental Income and First Trust

0.64

Correlation Coefficient

Fundamental Income  First Trust

Poor diversification

The 3 months correlation between Fundamental and First is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Fundamental Income Net and First Trust Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Enhanced and Fundamental Income 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 Fundamental Income Net 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 Enhanced has no effect on the direction of Fundamental Income i.e., Fundamental Income and First Trust go up and down completely randomly.

Pair Corralation between Fundamental Income and First Trust

Given the investment horizon of 90 days Fundamental Income is expected to generate 3.13 times less return on investment than First Trust. In addition to that, Fundamental Income is 1.17 times more volatile than First Trust Enhanced. It trades about 0.07 of its total potential returns per unit of risk. First Trust Enhanced is currently generating about 0.26 per unit of volatility. If you would invest  1,870  in First Trust Enhanced on April 26, 2025 and sell it today you would earn a total of  221.00  from holding First Trust Enhanced or generate 11.82% return on investment over 90 days.

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

Fundamental Income Net  vs.  First Trust Enhanced

Fundamental Income Net

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fundamental Income Net are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Fundamental Income is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

First Trust Enhanced

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Enhanced are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Fundamental Income and First Trust

The main advantage of trading using opposite Fundamental Income and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fundamental Income 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 Fundamental Income Net and First Trust Enhanced 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.