Correlation Between ALPS Clean and First Trust

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

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

Diversification Opportunities for ALPS Clean and First Trust

0.54

Correlation Coefficient

ALPS Clean  First Trust

Very weak diversification

The 3 months correlation between ALPS and First is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding ALPS Clean Energy and First Trust NASDAQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NASDAQ and ALPS Clean 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 ALPS Clean Energy 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 NASDAQ has no effect on the direction of ALPS Clean i.e., ALPS Clean and First Trust go up and down completely randomly.

Pair Corralation between ALPS Clean and First Trust

Given the investment horizon of 90 days ALPS Clean is expected to generate 3.87 times less return on investment than First Trust. In addition to that, ALPS Clean is 1.05 times more volatile than First Trust NASDAQ. It trades about 0.07 of its total potential returns per unit of risk. First Trust NASDAQ is currently generating about 0.28 per unit of volatility. If you would invest  3,307  in First Trust NASDAQ on September 15, 2024 and sell it today you would earn a total of  302.00  from holding First Trust NASDAQ or generate 9.13% return on investment over 90 days.

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

ALPS Clean Energy  vs.  First Trust NASDAQ

ALPS Clean Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALPS Clean Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, ALPS Clean is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

First Trust NASDAQ

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust NASDAQ are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, First Trust is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ALPS Clean and First Trust

The main advantage of trading using opposite ALPS Clean and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ALPS Clean 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 ALPS Clean Energy and First Trust NASDAQ 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.