Correlation Between First Trust and SSGA Active

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

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

Diversification Opportunities for First Trust and SSGA Active

0.96

Correlation Coefficient

First Trust  SSGA Active

Almost no diversification

The 3 months correlation between First and SSGA is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Municipal and SSGA Active Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSGA Active Trust 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 Municipal are associated (or correlated) with SSGA Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSGA Active Trust has no effect on the direction of First Trust i.e., First Trust and SSGA Active go up and down completely randomly.

Pair Corralation between First Trust and SSGA Active

Given the investment horizon of 90 days First Trust Municipal is expected to under-perform the SSGA Active. In addition to that, First Trust is 1.61 times more volatile than SSGA Active Trust. It trades about -0.03 of its total potential returns per unit of risk. SSGA Active Trust is currently generating about -0.02 per unit of volatility. If you would invest  2,939  in SSGA Active Trust on October 1, 2024 and sell it today you would lose (5.00) from holding SSGA Active Trust or give up 0.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

First Trust Municipal  vs.  SSGA Active Trust

First Trust Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Municipal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, First Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

SSGA Active Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SSGA Active Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, SSGA Active is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Trust and SSGA Active

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

The idea behind First Trust Municipal and SSGA Active Trust 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.