Correlation Between First Trust and ProShares Trust

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

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

Diversification Opportunities for First Trust and ProShares Trust

0.91

Correlation Coefficient

First Trust  ProShares Trust

Almost no diversification

The 3 months correlation between First and ProShares is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding First Trust SkyBridge and ProShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares 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 SkyBridge are associated (or correlated) with ProShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Trust has no effect on the direction of First Trust i.e., First Trust and ProShares Trust go up and down completely randomly.

Pair Corralation between First Trust and ProShares Trust

Given the investment horizon of 90 days First Trust SkyBridge is expected to under-perform the ProShares Trust. In addition to that, First Trust is 1.29 times more volatile than ProShares Trust. It trades about -0.1 of its total potential returns per unit of risk. ProShares Trust is currently generating about -0.07 per unit of volatility. If you would invest  8,898  in ProShares Trust on October 6, 2024 and sell it today you would lose (601.00) from holding ProShares Trust or give up 6.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.24%
Values	Daily Returns

First Trust SkyBridge  vs.  ProShares Trust

First Trust SkyBridge

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust SkyBridge are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, First Trust unveiled solid returns over the last few months and may actually be approaching a breakup point.

ProShares Trust

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Trust are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, ProShares Trust exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and ProShares Trust

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

The idea behind First Trust SkyBridge and ProShares 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.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.