Correlation Between First Trust and ProShares Russell

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

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

Diversification Opportunities for First Trust and ProShares Russell

0.58

Correlation Coefficient

First Trust  ProShares Russell

Very weak diversification

The 3 months correlation between First and ProShares is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding First Trust NASDAQ and ProShares Russell Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Russell 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 NASDAQ are associated (or correlated) with ProShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Russell has no effect on the direction of First Trust i.e., First Trust and ProShares Russell go up and down completely randomly.

Pair Corralation between First Trust and ProShares Russell

Given the investment horizon of 90 days First Trust NASDAQ is expected to generate 1.42 times more return on investment than ProShares Russell. However, First Trust is 1.42 times more volatile than ProShares Russell Dividend. It trades about 0.11 of its potential returns per unit of risk. ProShares Russell Dividend is currently generating about 0.11 per unit of risk. If you would invest  7,531  in First Trust NASDAQ on September 3, 2024 and sell it today you would earn a total of  548.00  from holding First Trust NASDAQ or generate 7.28% return on investment over 90 days.

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

First Trust NASDAQ  vs.  ProShares Russell Dividend

First Trust NASDAQ

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust NASDAQ are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady forward indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ProShares Russell

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Russell Dividend are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, ProShares Russell is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with First Trust and ProShares Russell

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

The idea behind First Trust NASDAQ and ProShares Russell Dividend 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.