Correlation Between Amplify CWP and First Trust

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

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

Diversification Opportunities for Amplify CWP and First Trust

0.88

Correlation Coefficient

Amplify CWP  First Trust

Very poor diversification

The 3 months correlation between Amplify and First is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Amplify CWP Enhanced and First Trust BuyWrite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust BuyWrite and Amplify CWP 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 Amplify CWP Enhanced 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 BuyWrite has no effect on the direction of Amplify CWP i.e., Amplify CWP and First Trust go up and down completely randomly.

Pair Corralation between Amplify CWP and First Trust

Given the investment horizon of 90 days Amplify CWP Enhanced is expected to under-perform the First Trust. In addition to that, Amplify CWP is 1.43 times more volatile than First Trust BuyWrite. It trades about -0.01 of its total potential returns per unit of risk. First Trust BuyWrite is currently generating about 0.47 per unit of volatility. If you would invest  2,306  in First Trust BuyWrite on September 19, 2024 and sell it today you would earn a total of  74.00  from holding First Trust BuyWrite or generate 3.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Amplify CWP Enhanced  vs.  First Trust BuyWrite

Amplify CWP Enhanced

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Amplify CWP Enhanced are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Amplify CWP is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

First Trust BuyWrite

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust BuyWrite are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, First Trust is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Amplify CWP and First Trust

The main advantage of trading using opposite Amplify CWP and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amplify CWP 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 Amplify CWP Enhanced and First Trust BuyWrite 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.