Correlation Between First Trust and PGIM Rock

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

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

Diversification Opportunities for First Trust and PGIM Rock

1.0

Correlation Coefficient

First Trust  PGIM Rock

No risk reduction

The 3 months correlation between First and PGIM is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Cboe and PGIM Rock ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PGIM Rock ETF and First 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 First Trust Cboe are associated (or correlated) with PGIM Rock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PGIM Rock ETF has no effect on the direction of First Trust i.e., First Trust and PGIM Rock go up and down completely randomly.

Pair Corralation between First Trust and PGIM Rock

Given the investment horizon of 90 days First Trust is expected to generate 1.12 times less return on investment than PGIM Rock. But when comparing it to its historical volatility, First Trust Cboe is 1.1 times less risky than PGIM Rock. It trades about 0.16 of its potential returns per unit of risk. PGIM Rock ETF is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,705  in PGIM Rock ETF on August 30, 2024 and sell it today you would earn a total of  106.00  from holding PGIM Rock ETF or generate 3.92% return on investment over 90 days.

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

First Trust Cboe  vs.  PGIM Rock ETF

First Trust Cboe

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Cboe are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

PGIM Rock ETF

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PGIM Rock ETF are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, PGIM Rock is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with First Trust and PGIM Rock

The main advantage of trading using opposite First Trust and PGIM Rock positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, PGIM Rock 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 PGIM Rock will offset losses from the drop in PGIM Rock's long position.

The idea behind First Trust Cboe and PGIM Rock ETF 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.