Correlation Between Tidal Trust and First Trust

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

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

Diversification Opportunities for Tidal Trust and First Trust

0.44

Correlation Coefficient

Tidal Trust  First Trust

Very weak diversification

The 3 months correlation between Tidal and First is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Tidal Trust II and First Trust Senior in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Senior and Tidal Trust 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 Tidal Trust II 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 Senior has no effect on the direction of Tidal Trust i.e., Tidal Trust and First Trust go up and down completely randomly.

Pair Corralation between Tidal Trust and First Trust

Given the investment horizon of 90 days Tidal Trust II is expected to generate 18.18 times more return on investment than First Trust. However, Tidal Trust is 18.18 times more volatile than First Trust Senior. It trades about 0.17 of its potential returns per unit of risk. First Trust Senior is currently generating about 0.11 per unit of risk. If you would invest  2,016  in Tidal Trust II on December 28, 2024 and sell it today you would earn a total of  179.00  from holding Tidal Trust II or generate 8.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	65.57%
Values	Daily Returns

Tidal Trust II  vs.  First Trust Senior

Tidal Trust II

Risk-Adjusted Performance

Good

Over the last 90 days Tidal Trust II has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather unfluctuating basic indicators, Tidal Trust exhibited solid returns over the last few months and may actually be approaching a breakup point.

First Trust Senior

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Senior are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, First Trust is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Tidal Trust and First Trust

The main advantage of trading using opposite Tidal Trust and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tidal Trust 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 Tidal Trust II and First Trust Senior 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.

Check out your portfolio center.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.