Correlation Between First Trust and SPDR SSgA

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

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

Diversification Opportunities for First Trust and SPDR SSgA

0.81

Correlation Coefficient

First Trust  SPDR SSgA

Very poor diversification

The 3 months correlation between First and SPDR is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Income and SPDR SSgA Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SSgA Global 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 Income are associated (or correlated) with SPDR SSgA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SSgA Global has no effect on the direction of First Trust i.e., First Trust and SPDR SSgA go up and down completely randomly.

Pair Corralation between First Trust and SPDR SSgA

Given the investment horizon of 90 days First Trust Income is expected to generate 0.96 times more return on investment than SPDR SSgA. However, First Trust Income is 1.04 times less risky than SPDR SSgA. It trades about 0.12 of its potential returns per unit of risk. SPDR SSgA Global is currently generating about 0.08 per unit of risk. If you would invest  1,839  in First Trust Income on September 24, 2024 and sell it today you would earn a total of  305.50  from holding First Trust Income or generate 16.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.6%
Values	Daily Returns

First Trust Income  vs.  SPDR SSgA Global

First Trust Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Income has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

SPDR SSgA Global

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with First Trust and SPDR SSgA

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

The idea behind First Trust Income and SPDR SSgA Global 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.