Correlation Between Themes Airlines and First Trust

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

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

Diversification Opportunities for Themes Airlines and First Trust

0.39

Correlation Coefficient

Themes Airlines  First Trust

Weak diversification

The 3 months correlation between Themes and First is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Themes Airlines ETF and First Trust Indxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Indxx and Themes Airlines 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 Themes Airlines ETF 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 Indxx has no effect on the direction of Themes Airlines i.e., Themes Airlines and First Trust go up and down completely randomly.

Pair Corralation between Themes Airlines and First Trust

Given the investment horizon of 90 days Themes Airlines ETF is expected to under-perform the First Trust. In addition to that, Themes Airlines is 1.14 times more volatile than First Trust Indxx. It trades about -0.03 of its total potential returns per unit of risk. First Trust Indxx is currently generating about 0.0 per unit of volatility. If you would invest  3,116  in First Trust Indxx on December 25, 2024 and sell it today you would lose (18.00) from holding First Trust Indxx or give up 0.58% of portfolio value over 90 days.

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

Themes Airlines ETF  vs.  First Trust Indxx

Themes Airlines ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days Themes Airlines ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Themes Airlines is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

First Trust Indxx

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Indxx has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, First Trust is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Themes Airlines and First Trust

The main advantage of trading using opposite Themes Airlines and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Themes Airlines 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 Themes Airlines ETF and First Trust Indxx 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.