Correlation Between First Trust and ProShares Short

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

By analyzing existing cross correlation between First Trust SkyBridge and ProShares Short QQQ, you can compare the effects of market volatilities on First Trust and ProShares Short 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 ProShares Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and ProShares Short.

Diversification Opportunities for First Trust and ProShares Short

-0.71

Correlation Coefficient

First Trust  ProShares Short

Pay attention - limited upside

The 3 months correlation between First and ProShares is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding First Trust SkyBridge and ProShares Short QQQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Short QQQ 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 SkyBridge are associated (or correlated) with ProShares Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Short QQQ has no effect on the direction of First Trust i.e., First Trust and ProShares Short go up and down completely randomly.

Pair Corralation between First Trust and ProShares Short

Given the investment horizon of 90 days First Trust SkyBridge is expected to generate 4.76 times more return on investment than ProShares Short. However, First Trust is 4.76 times more volatile than ProShares Short QQQ. It trades about 0.2 of its potential returns per unit of risk. ProShares Short QQQ is currently generating about -0.06 per unit of risk. If you would invest  1,145  in First Trust SkyBridge on August 30, 2024 and sell it today you would earn a total of  912.00  from holding First Trust SkyBridge or generate 79.65% return on investment over 90 days.

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

First Trust SkyBridge  vs.  ProShares Short QQQ

First Trust SkyBridge

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust SkyBridge are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, First Trust unveiled solid returns over the last few months and may actually be approaching a breakup point.

ProShares Short QQQ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares Short QQQ has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, ProShares Short is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with First Trust and ProShares Short

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

The idea behind First Trust SkyBridge and ProShares Short QQQ 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.