Correlation Between First Trust and Fidelity Covington

Can any of the company-specific risk be diversified away by investing in both First Trust and Fidelity Covington 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 Fidelity Covington 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 Fidelity Covington Trust, you can compare the effects of market volatilities on First Trust and Fidelity Covington 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 Fidelity Covington. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Fidelity Covington.

Diversification Opportunities for First Trust and Fidelity Covington

0.48

Correlation Coefficient

First Trust  Fidelity Covington

Very weak diversification

The 3 months correlation between First and Fidelity is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and Fidelity Covington Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Covington 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 Exchange Traded are associated (or correlated) with Fidelity Covington. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Covington Trust has no effect on the direction of First Trust i.e., First Trust and Fidelity Covington go up and down completely randomly.

Pair Corralation between First Trust and Fidelity Covington

Given the investment horizon of 90 days First Trust is expected to generate 2.96 times less return on investment than Fidelity Covington. But when comparing it to its historical volatility, First Trust Exchange Traded is 6.89 times less risky than Fidelity Covington. It trades about 0.29 of its potential returns per unit of risk. Fidelity Covington Trust is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,374  in Fidelity Covington Trust on October 26, 2024 and sell it today you would earn a total of  291.00  from holding Fidelity Covington Trust or generate 8.62% return on investment over 90 days.

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

First Trust Exchange Traded  vs.  Fidelity Covington Trust

First Trust Exchange

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Fidelity Covington Trust

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Covington Trust are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Fidelity Covington may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with First Trust and Fidelity Covington

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

The idea behind First Trust Exchange Traded and Fidelity Covington 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.

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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.