Correlation Between FlexShares Quality and First Trust

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

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

Diversification Opportunities for FlexShares Quality and First Trust

0.95

Correlation Coefficient

FlexShares Quality  First Trust

Almost no diversification

The 3 months correlation between FlexShares and First is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares Quality Dividend and First Trust SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust SP and FlexShares Quality 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 FlexShares Quality Dividend 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 SP has no effect on the direction of FlexShares Quality i.e., FlexShares Quality and First Trust go up and down completely randomly.

Pair Corralation between FlexShares Quality and First Trust

Given the investment horizon of 90 days FlexShares Quality Dividend is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, FlexShares Quality Dividend is 1.04 times less risky than First Trust. The etf trades about -0.03 of its potential returns per unit of risk. The First Trust SP is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,782  in First Trust SP on February 5, 2025 and sell it today you would lose (67.00) from holding First Trust SP or give up 2.41% of portfolio value over 90 days.

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

FlexShares Quality Dividend  vs.  First Trust SP

FlexShares Quality

Risk-Adjusted Performance

Very Weak

Over the last 90 days FlexShares Quality Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, FlexShares Quality is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

First Trust SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust SP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, First Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with FlexShares Quality and First Trust

The main advantage of trading using opposite FlexShares Quality and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares Quality 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 FlexShares Quality Dividend and First Trust SP 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.