Correlation Between SPDR Galaxy and First Trust

Can any of the company-specific risk be diversified away by investing in both SPDR Galaxy 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 Galaxy 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 Galaxy Digital and First Trust Indxx, you can compare the effects of market volatilities on SPDR Galaxy 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 Galaxy with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Galaxy and First Trust.

Diversification Opportunities for SPDR Galaxy and First Trust

0.31

Correlation Coefficient

SPDR Galaxy  First Trust

Weak diversification

The 3 months correlation between SPDR and First is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Galaxy Digital and First Trust Indxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Indxx and SPDR Galaxy 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 Galaxy Digital 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 Indxx has no effect on the direction of SPDR Galaxy i.e., SPDR Galaxy and First Trust go up and down completely randomly.

Pair Corralation between SPDR Galaxy and First Trust

Given the investment horizon of 90 days SPDR Galaxy Digital is expected to generate 3.77 times more return on investment than First Trust. However, SPDR Galaxy is 3.77 times more volatile than First Trust Indxx. It trades about 0.16 of its potential returns per unit of risk. First Trust Indxx is currently generating about 0.08 per unit of risk. If you would invest  2,529  in SPDR Galaxy Digital on September 23, 2024 and sell it today you would earn a total of  1,078  from holding SPDR Galaxy Digital or generate 42.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	14.89%
Values	Daily Returns

SPDR Galaxy Digital  vs.  First Trust Indxx

SPDR Galaxy Digital

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Galaxy Digital are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental indicators, SPDR Galaxy displayed solid returns over the last few months and may actually be approaching a breakup point.

First Trust Indxx

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Indxx are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with SPDR Galaxy and First Trust

The main advantage of trading using opposite SPDR Galaxy and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Galaxy 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 Galaxy Digital and First Trust Indxx 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.