Correlation Between First Trust and ProShares VIX

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

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

Diversification Opportunities for First Trust and ProShares VIX

-0.14

Correlation Coefficient

First Trust  ProShares VIX

Good diversification

The 3 months correlation between First and ProShares is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Alternative and ProShares VIX Mid Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares VIX Mid 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 Alternative are associated (or correlated) with ProShares VIX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares VIX Mid has no effect on the direction of First Trust i.e., First Trust and ProShares VIX go up and down completely randomly.

Pair Corralation between First Trust and ProShares VIX

Given the investment horizon of 90 days First Trust Alternative is expected to generate 0.31 times more return on investment than ProShares VIX. However, First Trust Alternative is 3.22 times less risky than ProShares VIX. It trades about 0.04 of its potential returns per unit of risk. ProShares VIX Mid Term is currently generating about -0.04 per unit of risk. If you would invest  2,795  in First Trust Alternative on September 13, 2024 and sell it today you would earn a total of  35.00  from holding First Trust Alternative or generate 1.25% return on investment over 90 days.

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

First Trust Alternative  vs.  ProShares VIX Mid Term

First Trust Alternative

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Alternative are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, First Trust is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

ProShares VIX Mid

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares VIX Mid Term has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, ProShares VIX is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Trust and ProShares VIX

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

The idea behind First Trust Alternative and ProShares VIX Mid Term 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.