Correlation Between WisdomTree Managed and First Trust

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

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

Diversification Opportunities for WisdomTree Managed and First Trust

0.88

Correlation Coefficient

WisdomTree Managed  First Trust

Very poor diversification

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

Pair Corralation between WisdomTree Managed and First Trust

Given the investment horizon of 90 days WisdomTree Managed is expected to generate 1.78 times less return on investment than First Trust. But when comparing it to its historical volatility, WisdomTree Managed Futures is 1.13 times less risky than First Trust. It trades about 0.07 of its potential returns per unit of risk. First Trust LongShort is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,705  in First Trust LongShort on September 21, 2024 and sell it today you would earn a total of  1,882  from holding First Trust LongShort or generate 40.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

WisdomTree Managed Futures  vs.  First Trust LongShort

WisdomTree Managed

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Managed Futures are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, WisdomTree Managed is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

First Trust LongShort

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust LongShort are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, First Trust is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with WisdomTree Managed and First Trust

The main advantage of trading using opposite WisdomTree Managed and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree Managed 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 WisdomTree Managed Futures and First Trust LongShort 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.