Correlation Between First Trust and ProShares

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

By analyzing existing cross correlation between First Trust NASDAQ and ProShares SP Technology, you can compare the effects of market volatilities on First Trust and ProShares 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 ProShares. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and ProShares.

Diversification Opportunities for First Trust and ProShares

0.74

Correlation Coefficient

First Trust  ProShares

Poor diversification

The 3 months correlation between First and ProShares is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding First Trust NASDAQ and ProShares SP Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares SP Technology 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 NASDAQ are associated (or correlated) with ProShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares SP Technology has no effect on the direction of First Trust i.e., First Trust and ProShares go up and down completely randomly.

Pair Corralation between First Trust and ProShares

Given the investment horizon of 90 days First Trust NASDAQ is expected to generate 1.56 times more return on investment than ProShares. However, First Trust is 1.56 times more volatile than ProShares SP Technology. It trades about 0.43 of its potential returns per unit of risk. ProShares SP Technology is currently generating about 0.23 per unit of risk. If you would invest  6,124  in First Trust NASDAQ on September 17, 2024 and sell it today you would earn a total of  580.00  from holding First Trust NASDAQ or generate 9.47% return on investment over 90 days.

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

First Trust NASDAQ  vs.  ProShares SP Technology

First Trust NASDAQ

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust NASDAQ are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental drivers, First Trust reported solid returns over the last few months and may actually be approaching a breakup point.

ProShares SP Technology

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares SP Technology are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, ProShares is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with First Trust and ProShares

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

The idea behind First Trust NASDAQ and ProShares SP Technology 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.