Correlation Between Adaptive Alpha and First Trust

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

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

Diversification Opportunities for Adaptive Alpha and First Trust

0.93

Correlation Coefficient

Adaptive Alpha  First Trust

Almost no diversification

The 3 months correlation between Adaptive and First is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Adaptive Alpha Opportunities and First Trust Active in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Active and Adaptive Alpha 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 Adaptive Alpha Opportunities 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 Active has no effect on the direction of Adaptive Alpha i.e., Adaptive Alpha and First Trust go up and down completely randomly.

Pair Corralation between Adaptive Alpha and First Trust

Given the investment horizon of 90 days Adaptive Alpha Opportunities is expected to under-perform the First Trust. In addition to that, Adaptive Alpha is 1.84 times more volatile than First Trust Active. It trades about -0.1 of its total potential returns per unit of risk. First Trust Active is currently generating about -0.06 per unit of volatility. If you would invest  3,470  in First Trust Active on December 28, 2024 and sell it today you would lose (130.00) from holding First Trust Active or give up 3.75% of portfolio value over 90 days.

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

Adaptive Alpha Opportunities  vs.  First Trust Active

Adaptive Alpha Oppor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Adaptive Alpha Opportunities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

First Trust Active

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Active has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, First Trust is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Adaptive Alpha and First Trust

The main advantage of trading using opposite Adaptive Alpha and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adaptive Alpha 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 Adaptive Alpha Opportunities and First Trust Active 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.