Correlation Between First Trust and Simplify Exchange

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

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

Diversification Opportunities for First Trust and Simplify Exchange

0.25

Correlation Coefficient

First Trust  Simplify Exchange

Modest diversification

The 3 months correlation between First and Simplify is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding First Trust LongShort and Simplify Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simplify Exchange Traded 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 LongShort are associated (or correlated) with Simplify Exchange. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simplify Exchange Traded has no effect on the direction of First Trust i.e., First Trust and Simplify Exchange go up and down completely randomly.

Pair Corralation between First Trust and Simplify Exchange

Given the investment horizon of 90 days First Trust is expected to generate 1.07 times less return on investment than Simplify Exchange. But when comparing it to its historical volatility, First Trust LongShort is 1.44 times less risky than Simplify Exchange. It trades about 0.23 of its potential returns per unit of risk. Simplify Exchange Traded is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,503  in Simplify Exchange Traded on September 13, 2024 and sell it today you would earn a total of  181.00  from holding Simplify Exchange Traded or generate 7.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	89.06%
Values	Daily Returns

First Trust LongShort  vs.  Simplify Exchange Traded

First Trust LongShort

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust LongShort are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile essential indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Simplify Exchange Traded

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Simplify Exchange Traded are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Simplify Exchange may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Trust and Simplify Exchange

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

The idea behind First Trust LongShort and Simplify Exchange Traded 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.