Correlation Between Alerian MLP and First Trust

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

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

Diversification Opportunities for Alerian MLP and First Trust

0.91

Correlation Coefficient

Alerian MLP  First Trust

Almost no diversification

The 3 months correlation between Alerian and First is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Alerian MLP ETF and First Trust North in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust North and Alerian MLP 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 Alerian MLP 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 North has no effect on the direction of Alerian MLP i.e., Alerian MLP and First Trust go up and down completely randomly.

Pair Corralation between Alerian MLP and First Trust

Given the investment horizon of 90 days Alerian MLP ETF is expected to generate 1.01 times more return on investment than First Trust. However, Alerian MLP is 1.01 times more volatile than First Trust North. It trades about 0.17 of its potential returns per unit of risk. First Trust North is currently generating about 0.1 per unit of risk. If you would invest  4,712  in Alerian MLP ETF on December 28, 2024 and sell it today you would earn a total of  488.00  from holding Alerian MLP ETF or generate 10.36% return on investment over 90 days.

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

Alerian MLP ETF  vs.  First Trust North

Alerian MLP ETF

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alerian MLP ETF are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively sluggish essential indicators, Alerian MLP may actually be approaching a critical reversion point that can send shares even higher in April 2025.

First Trust North

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust North are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable essential indicators, First Trust is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Alerian MLP and First Trust

The main advantage of trading using opposite Alerian MLP and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alerian MLP 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 Alerian MLP ETF and First Trust North 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.