Correlation Between Dynamic Active and FT AlphaDEX

Can any of the company-specific risk be diversified away by investing in both Dynamic Active and FT AlphaDEX 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 Dynamic Active and FT AlphaDEX into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dynamic Active Dividend and FT AlphaDEX Industrials, you can compare the effects of market volatilities on Dynamic Active and FT AlphaDEX 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 Dynamic Active with a short position of FT AlphaDEX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dynamic Active and FT AlphaDEX.

Diversification Opportunities for Dynamic Active and FT AlphaDEX

0.92

Correlation Coefficient

Dynamic Active  FT AlphaDEX

Almost no diversification

The 3 months correlation between Dynamic and FHG is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Dynamic Active Dividend and FT AlphaDEX Industrials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FT AlphaDEX Industrials and Dynamic Active 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 Dynamic Active Dividend are associated (or correlated) with FT AlphaDEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FT AlphaDEX Industrials has no effect on the direction of Dynamic Active i.e., Dynamic Active and FT AlphaDEX go up and down completely randomly.

Pair Corralation between Dynamic Active and FT AlphaDEX

Assuming the 90 days trading horizon Dynamic Active Dividend is expected to under-perform the FT AlphaDEX. In addition to that, Dynamic Active is 1.28 times more volatile than FT AlphaDEX Industrials. It trades about -0.12 of its total potential returns per unit of risk. FT AlphaDEX Industrials is currently generating about -0.07 per unit of volatility. If you would invest  5,646  in FT AlphaDEX Industrials on December 29, 2024 and sell it today you would lose (295.00) from holding FT AlphaDEX Industrials or give up 5.22% of portfolio value over 90 days.

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

Dynamic Active Dividend  vs.  FT AlphaDEX Industrials

Dynamic Active Dividend

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dynamic Active Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

FT AlphaDEX Industrials

Risk-Adjusted Performance

Very Weak

Over the last 90 days FT AlphaDEX Industrials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, FT AlphaDEX is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Dynamic Active and FT AlphaDEX

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

The idea behind Dynamic Active Dividend and FT AlphaDEX Industrials 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.