Correlation Between WisdomTree Trust and First Trust

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

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

Diversification Opportunities for WisdomTree Trust and First Trust

0.24

Correlation Coefficient

WisdomTree Trust  First Trust

Modest diversification

The 3 months correlation between WisdomTree and First is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Trust and First Trust Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Exchange and WisdomTree 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 WisdomTree Trust 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 Exchange has no effect on the direction of WisdomTree Trust i.e., WisdomTree Trust and First Trust go up and down completely randomly.

Pair Corralation between WisdomTree Trust and First Trust

Given the investment horizon of 90 days WisdomTree Trust is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, WisdomTree Trust is 2.0 times less risky than First Trust. The etf trades about -0.38 of its potential returns per unit of risk. The First Trust Exchange Traded is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,058  in First Trust Exchange Traded on September 26, 2024 and sell it today you would earn a total of  45.00  from holding First Trust Exchange Traded or generate 1.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

WisdomTree Trust   vs.  First Trust Exchange Traded

WisdomTree Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, WisdomTree Trust is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

First Trust Exchange

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating essential indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with WisdomTree Trust and First Trust

The main advantage of trading using opposite WisdomTree Trust and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree Trust 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 WisdomTree Trust and First Trust Exchange Traded 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.