Correlation Between FT Vest and First Trust

Can any of the company-specific risk be diversified away by investing in both FT Vest 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 Vest 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 Vest NASDAQ 100 and First Trust Cboe, you can compare the effects of market volatilities on FT Vest 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 Vest with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of FT Vest and First Trust.

Diversification Opportunities for FT Vest and First Trust

0.92

Correlation Coefficient

FT Vest  First Trust

Almost no diversification

The 3 months correlation between QMMY and First is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding FT Vest NASDAQ 100 and First Trust Cboe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Cboe and FT Vest 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 Vest NASDAQ 100 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 Cboe has no effect on the direction of FT Vest i.e., FT Vest and First Trust go up and down completely randomly.

Pair Corralation between FT Vest and First Trust

Given the investment horizon of 90 days FT Vest NASDAQ 100 is expected to generate 1.35 times more return on investment than First Trust. However, FT Vest is 1.35 times more volatile than First Trust Cboe. It trades about 0.38 of its potential returns per unit of risk. First Trust Cboe is currently generating about 0.43 per unit of risk. If you would invest  2,096  in FT Vest NASDAQ 100 on September 5, 2024 and sell it today you would earn a total of  71.00  from holding FT Vest NASDAQ 100 or generate 3.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

FT Vest NASDAQ 100  vs.  First Trust Cboe

FT Vest NASDAQ

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in FT Vest NASDAQ 100 are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, FT Vest may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Trust Cboe

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Cboe are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with FT Vest and First Trust

The main advantage of trading using opposite FT Vest and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FT Vest 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 Vest NASDAQ 100 and First Trust Cboe 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.