Correlation Between First Trust and ALPS Clean

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

By analyzing existing cross correlation between First Trust Global and ALPS Clean Energy, you can compare the effects of market volatilities on First Trust and ALPS Clean 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 Clean. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and ALPS Clean.

Diversification Opportunities for First Trust and ALPS Clean

0.76

Correlation Coefficient

First Trust  ALPS Clean

Poor diversification

The 3 months correlation between First and ALPS is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Global and ALPS Clean Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPS Clean Energy 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 Global are associated (or correlated) with ALPS Clean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALPS Clean Energy has no effect on the direction of First Trust i.e., First Trust and ALPS Clean go up and down completely randomly.

Pair Corralation between First Trust and ALPS Clean

Considering the 90-day investment horizon First Trust Global is expected to under-perform the ALPS Clean. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Global is 1.8 times less risky than ALPS Clean. The etf trades about -0.08 of its potential returns per unit of risk. The ALPS Clean Energy is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,690  in ALPS Clean Energy on September 15, 2024 and sell it today you would earn a total of  56.00  from holding ALPS Clean Energy or generate 2.08% return on investment over 90 days.

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

First Trust Global  vs.  ALPS Clean Energy

First Trust Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Etf's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the ETF investors.

ALPS Clean Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALPS Clean Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, ALPS Clean is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with First Trust and ALPS Clean

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

The idea behind First Trust Global and ALPS Clean Energy 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.