Correlation Between First Trust and ETRACS 2xMonthly

Can any of the company-specific risk be diversified away by investing in both First Trust and ETRACS 2xMonthly 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 ETRACS 2xMonthly 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 ETRACS 2xMonthly Pay, you can compare the effects of market volatilities on First Trust and ETRACS 2xMonthly 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 ETRACS 2xMonthly. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and ETRACS 2xMonthly.

Diversification Opportunities for First Trust and ETRACS 2xMonthly

-0.33

Correlation Coefficient

First Trust  ETRACS 2xMonthly

Very good diversification

The 3 months correlation between First and ETRACS is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding First Trust SkyBridge and ETRACS 2xMonthly Pay in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETRACS 2xMonthly Pay 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 ETRACS 2xMonthly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETRACS 2xMonthly Pay has no effect on the direction of First Trust i.e., First Trust and ETRACS 2xMonthly go up and down completely randomly.

Pair Corralation between First Trust and ETRACS 2xMonthly

Given the investment horizon of 90 days First Trust SkyBridge is expected to generate 2.52 times more return on investment than ETRACS 2xMonthly. However, First Trust is 2.52 times more volatile than ETRACS 2xMonthly Pay. It trades about 0.23 of its potential returns per unit of risk. ETRACS 2xMonthly Pay is currently generating about 0.02 per unit of risk. If you would invest  1,056  in First Trust SkyBridge on September 2, 2024 and sell it today you would earn a total of  1,014  from holding First Trust SkyBridge or generate 96.02% return on investment over 90 days.

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

First Trust SkyBridge  vs.  ETRACS 2xMonthly Pay

First Trust SkyBridge

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust SkyBridge are ranked lower than 18 (%) 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.

ETRACS 2xMonthly Pay

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ETRACS 2xMonthly Pay are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical indicators, ETRACS 2xMonthly is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and ETRACS 2xMonthly

The main advantage of trading using opposite First Trust and ETRACS 2xMonthly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, ETRACS 2xMonthly 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 ETRACS 2xMonthly will offset losses from the drop in ETRACS 2xMonthly's long position.

The idea behind First Trust SkyBridge and ETRACS 2xMonthly Pay 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.