Correlation Between SPDR Kensho and First Trust

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

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

Diversification Opportunities for SPDR Kensho and First Trust

0.36

Correlation Coefficient

SPDR Kensho  First Trust

Weak diversification

The 3 months correlation between SPDR and First is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Kensho Clean and First Trust NASDAQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NASDAQ and SPDR Kensho 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 SPDR Kensho Clean 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 SPDR Kensho i.e., SPDR Kensho and First Trust go up and down completely randomly.

Pair Corralation between SPDR Kensho and First Trust

Given the investment horizon of 90 days SPDR Kensho Clean is expected to under-perform the First Trust. In addition to that, SPDR Kensho is 1.74 times more volatile than First Trust NASDAQ. It trades about -0.02 of its total potential returns per unit of risk. First Trust NASDAQ is currently generating about 0.08 per unit of volatility. If you would invest  8,554  in First Trust NASDAQ on September 16, 2024 and sell it today you would earn a total of  3,867  from holding First Trust NASDAQ or generate 45.21% return on investment over 90 days.

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

SPDR Kensho Clean  vs.  First Trust NASDAQ

SPDR Kensho Clean

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Kensho Clean are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, SPDR Kensho is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

First Trust NASDAQ

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust NASDAQ are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward indicators, First Trust is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SPDR Kensho and First Trust

The main advantage of trading using opposite SPDR Kensho and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Kensho 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 SPDR Kensho Clean and First Trust NASDAQ 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.