Correlation Between First Trust and Alger ETF

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

By analyzing existing cross correlation between First Trust Exchange Traded and The Alger ETF, you can compare the effects of market volatilities on First Trust and Alger ETF 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 Alger ETF. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Alger ETF.

Diversification Opportunities for First Trust and Alger ETF

0.87

Correlation Coefficient

First Trust  Alger ETF

Very poor diversification

The 3 months correlation between First and Alger is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and The Alger ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alger ETF 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 Exchange Traded are associated (or correlated) with Alger ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alger ETF has no effect on the direction of First Trust i.e., First Trust and Alger ETF go up and down completely randomly.

Pair Corralation between First Trust and Alger ETF

Given the investment horizon of 90 days First Trust Exchange Traded is expected to generate 0.2 times more return on investment than Alger ETF. However, First Trust Exchange Traded is 4.93 times less risky than Alger ETF. It trades about -0.07 of its potential returns per unit of risk. The Alger ETF is currently generating about -0.08 per unit of risk. If you would invest  3,908  in First Trust Exchange Traded on December 28, 2024 and sell it today you would lose (75.00) from holding First Trust Exchange Traded or give up 1.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

First Trust Exchange Traded  vs.  The Alger ETF

First Trust Exchange

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Exchange Traded has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Alger ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Alger ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest fragile performance, the Etf's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Pair Trading with First Trust and Alger ETF

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

The idea behind First Trust Exchange Traded and The Alger ETF 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.