Correlation Between FT AlphaDEX and First Trust

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

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

Diversification Opportunities for FT AlphaDEX and First Trust

0.93

Correlation Coefficient

FT AlphaDEX  First Trust

Almost no diversification

The 3 months correlation between FHG and First is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding FT AlphaDEX Industrials and First Trust NASDAQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NASDAQ and FT AlphaDEX 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 FT AlphaDEX Industrials are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust NASDAQ has no effect on the direction of FT AlphaDEX i.e., FT AlphaDEX and First Trust go up and down completely randomly.

Pair Corralation between FT AlphaDEX and First Trust

Assuming the 90 days trading horizon FT AlphaDEX is expected to generate 1.09 times less return on investment than First Trust. But when comparing it to its historical volatility, FT AlphaDEX Industrials is 1.21 times less risky than First Trust. It trades about 0.12 of its potential returns per unit of risk. First Trust NASDAQ is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,290  in First Trust NASDAQ on September 14, 2024 and sell it today you would earn a total of  1,941  from holding First Trust NASDAQ or generate 59.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.75%
Values	Daily Returns

FT AlphaDEX Industrials  vs.  First Trust NASDAQ

FT AlphaDEX Industrials

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in FT AlphaDEX Industrials are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, FT AlphaDEX displayed solid returns over the last few months and may actually be approaching a breakup point.

First Trust NASDAQ

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust NASDAQ are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, First Trust displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FT AlphaDEX and First Trust

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

The idea behind FT AlphaDEX Industrials and First Trust NASDAQ 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.