Correlation Between First Trust and WisdomTree Trust

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

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

Diversification Opportunities for First Trust and WisdomTree Trust

0.24

Correlation Coefficient

First Trust  WisdomTree Trust

Modest diversification

The 3 months correlation between First and WisdomTree is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and WisdomTree Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree 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 Exchange Traded are associated (or correlated) with WisdomTree Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Trust has no effect on the direction of First Trust i.e., First Trust and WisdomTree Trust go up and down completely randomly.

Pair Corralation between First Trust and WisdomTree Trust

Given the investment horizon of 90 days First Trust Exchange Traded is expected to generate 1.68 times more return on investment than WisdomTree Trust. However, First Trust is 1.68 times more volatile than WisdomTree Trust . It trades about 0.12 of its potential returns per unit of risk. WisdomTree Trust is currently generating about -0.04 per unit of risk. If you would invest  2,856  in First Trust Exchange Traded on September 26, 2024 and sell it today you would earn a total of  247.00  from holding First Trust Exchange Traded or generate 8.65% return on investment over 90 days.

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

First Trust Exchange Traded  vs.  WisdomTree Trust

First Trust Exchange

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating essential indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WisdomTree Trust

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with First Trust and WisdomTree Trust

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

The idea behind First Trust Exchange Traded and WisdomTree 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.