Correlation Between VanEck Energy and First Trust

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

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

Diversification Opportunities for VanEck Energy and First Trust

0.97

Correlation Coefficient

VanEck Energy  First Trust

Almost no diversification

The 3 months correlation between VanEck and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Energy Income and First Trust North in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust North and VanEck Energy 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 VanEck Energy Income 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 North has no effect on the direction of VanEck Energy i.e., VanEck Energy and First Trust go up and down completely randomly.

Pair Corralation between VanEck Energy and First Trust

Given the investment horizon of 90 days VanEck Energy Income is expected to generate 1.23 times more return on investment than First Trust. However, VanEck Energy is 1.23 times more volatile than First Trust North. It trades about 0.17 of its potential returns per unit of risk. First Trust North is currently generating about 0.17 per unit of risk. If you would invest  6,579  in VanEck Energy Income on October 7, 2024 and sell it today you would earn a total of  3,072  from holding VanEck Energy Income or generate 46.69% return on investment over 90 days.

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

VanEck Energy Income  vs.  First Trust North

VanEck Energy Income

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Energy Income are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, VanEck Energy may actually be approaching a critical reversion point that can send shares even higher in February 2025.

First Trust North

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust North are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak essential indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with VanEck Energy and First Trust

The main advantage of trading using opposite VanEck Energy and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VanEck Energy 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 VanEck Energy Income and First Trust North 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.