Correlation Between First Trust and Listed Funds

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

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

Diversification Opportunities for First Trust and Listed Funds

0.99

Correlation Coefficient

First Trust  Listed Funds

No risk reduction

The 3 months correlation between First and Listed is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Cboe and Listed Funds Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Listed Funds Trust and First 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 First Trust Cboe are associated (or correlated) with Listed Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Listed Funds Trust has no effect on the direction of First Trust i.e., First Trust and Listed Funds go up and down completely randomly.

Pair Corralation between First Trust and Listed Funds

Given the investment horizon of 90 days First Trust Cboe is expected to under-perform the Listed Funds. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Cboe is 1.2 times less risky than Listed Funds. The etf trades about -0.08 of its potential returns per unit of risk. The Listed Funds Trust is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  3,457  in Listed Funds Trust on December 28, 2024 and sell it today you would lose (82.20) from holding Listed Funds Trust or give up 2.38% of portfolio value over 90 days.

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

First Trust Cboe  vs.  Listed Funds Trust

First Trust Cboe

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Cboe has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Listed Funds Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Listed Funds Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, Listed Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Listed Funds

The main advantage of trading using opposite First Trust and Listed Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Listed Funds 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 Listed Funds will offset losses from the drop in Listed Funds' long position.

The idea behind First Trust Cboe and Listed Funds Trust 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.