Correlation Between First Trust and ALPS REIT

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

Diversification Opportunities for First Trust and ALPS REIT

0.64

Correlation Coefficient

First Trust  ALPS REIT

Poor diversification

The 3 months correlation between First and ALPS is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and ALPS REIT Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPS REIT Dividend 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 ALPS REIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALPS REIT Dividend has no effect on the direction of First Trust i.e., First Trust and ALPS REIT go up and down completely randomly.

Pair Corralation between First Trust and ALPS REIT

Given the investment horizon of 90 days First Trust Exchange Traded is expected to under-perform the ALPS REIT. In addition to that, First Trust is 1.24 times more volatile than ALPS REIT Dividend. It trades about -0.11 of its total potential returns per unit of risk. ALPS REIT Dividend is currently generating about 0.13 per unit of volatility. If you would invest  3,991  in ALPS REIT Dividend on September 15, 2024 and sell it today you would earn a total of  77.00  from holding ALPS REIT Dividend or generate 1.93% return on investment over 90 days.

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

First Trust Exchange Traded  vs.  ALPS REIT Dividend

First Trust Exchange

Risk-Adjusted Performance

0 of 100

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 latest unsteady performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

ALPS REIT Dividend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALPS REIT Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ALPS REIT is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with First Trust and ALPS REIT

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

The idea behind First Trust Exchange Traded and ALPS REIT Dividend 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.