Correlation Between ARK Next and First Trust

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

By analyzing existing cross correlation between ARK Next Generation and First Trust NASDAQ 100, you can compare the effects of market volatilities on ARK Next 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 ARK Next with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARK Next and First Trust.

Diversification Opportunities for ARK Next and First Trust

0.51

Correlation Coefficient

ARK Next  First Trust

Very weak diversification

The 3 months correlation between ARK and First is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding ARK Next Generation and First Trust NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NASDAQ and ARK Next 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 ARK Next Generation 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 ARK Next i.e., ARK Next and First Trust go up and down completely randomly.

Pair Corralation between ARK Next and First Trust

Given the investment horizon of 90 days ARK Next Generation is expected to generate 3.01 times more return on investment than First Trust. However, ARK Next is 3.01 times more volatile than First Trust NASDAQ 100. It trades about 0.09 of its potential returns per unit of risk. First Trust NASDAQ 100 is currently generating about 0.16 per unit of risk. If you would invest  11,184  in ARK Next Generation on October 22, 2024 and sell it today you would earn a total of  374.00  from holding ARK Next Generation or generate 3.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

ARK Next Generation  vs.  First Trust NASDAQ 100

ARK Next Generation

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ARK Next Generation are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, ARK Next showed solid returns over the last few months and may actually be approaching a breakup point.

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 100 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, First Trust is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with ARK Next and First Trust

The main advantage of trading using opposite ARK Next and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARK Next 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 ARK Next Generation and First Trust NASDAQ 100 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.