Correlation Between Principal Value and First Trust

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

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

Diversification Opportunities for Principal Value and First Trust

0.68

Correlation Coefficient

Principal Value  First Trust

Poor diversification

The 3 months correlation between Principal and First is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Principal Value ETF and First Trust RiverFront in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust RiverFront and Principal Value 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 Principal Value ETF 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 RiverFront has no effect on the direction of Principal Value i.e., Principal Value and First Trust go up and down completely randomly.

Pair Corralation between Principal Value and First Trust

Allowing for the 90-day total investment horizon Principal Value is expected to generate 1.07 times less return on investment than First Trust. In addition to that, Principal Value is 1.0 times more volatile than First Trust RiverFront. It trades about 0.09 of its total potential returns per unit of risk. First Trust RiverFront is currently generating about 0.1 per unit of volatility. If you would invest  6,572  in First Trust RiverFront on May 12, 2025 and sell it today you would earn a total of  297.00  from holding First Trust RiverFront or generate 4.52% return on investment over 90 days.

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

Principal Value ETF  vs.  First Trust RiverFront

Principal Value ETF

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Value ETF are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Principal Value is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

First Trust RiverFront

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust RiverFront are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Principal Value and First Trust

The main advantage of trading using opposite Principal Value and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal Value 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 Principal Value ETF and First Trust RiverFront 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.