Correlation Between Exchange Traded and First Trust

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

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

Diversification Opportunities for Exchange Traded and First Trust

0.88

Correlation Coefficient

Exchange Traded  First Trust

Very poor diversification

The 3 months correlation between Exchange and First is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Exchange Traded Concepts and First Trust Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Exchange and Exchange Traded 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 Exchange Traded Concepts 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 Exchange has no effect on the direction of Exchange Traded i.e., Exchange Traded and First Trust go up and down completely randomly.

Pair Corralation between Exchange Traded and First Trust

Given the investment horizon of 90 days Exchange Traded is expected to generate 2.36 times less return on investment than First Trust. But when comparing it to its historical volatility, Exchange Traded Concepts is 2.03 times less risky than First Trust. It trades about 0.1 of its potential returns per unit of risk. First Trust Exchange Traded is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,627  in First Trust Exchange Traded on September 14, 2024 and sell it today you would earn a total of  1,538  from holding First Trust Exchange Traded or generate 94.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	29.15%
Values	Daily Returns

Exchange Traded Concepts  vs.  First Trust Exchange Traded

Exchange Traded Concepts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Exchange Traded Concepts has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Exchange Traded is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Trust Exchange

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating essential indicators, First Trust reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Exchange Traded and First Trust

The main advantage of trading using opposite Exchange Traded and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exchange Traded 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 Exchange Traded Concepts and First Trust 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.

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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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.