Correlation Between First Trust and Strategy Shares

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Can any of the company-specific risk be diversified away by investing in both First Trust and Strategy Shares 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 Strategy Shares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Lunt and Strategy Shares Gold Hedged, you can compare the effects of market volatilities on First Trust and Strategy Shares 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 Strategy Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Strategy Shares.

Diversification Opportunities for First Trust and Strategy Shares

0.63
  Correlation Coefficient

Poor diversification

The 3 months correlation between First and Strategy is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Lunt and Strategy Shares Gold Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategy Shares Gold 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 Lunt are associated (or correlated) with Strategy Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategy Shares Gold has no effect on the direction of First Trust i.e., First Trust and Strategy Shares go up and down completely randomly.

Pair Corralation between First Trust and Strategy Shares

Given the investment horizon of 90 days First Trust is expected to generate 2.8 times less return on investment than Strategy Shares. But when comparing it to its historical volatility, First Trust Lunt is 1.02 times less risky than Strategy Shares. It trades about 0.06 of its potential returns per unit of risk. Strategy Shares Gold Hedged is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,209  in Strategy Shares Gold Hedged on September 19, 2024 and sell it today you would earn a total of  126.00  from holding Strategy Shares Gold Hedged or generate 5.7% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy25.4%
ValuesDaily Returns

First Trust Lunt  vs.  Strategy Shares Gold Hedged

 Performance 
       Timeline  
First Trust Lunt 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Lunt are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Strategy Shares Gold 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Strategy Shares Gold Hedged has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Strategy Shares is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

First Trust and Strategy Shares Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with First Trust and Strategy Shares

The main advantage of trading using opposite First Trust and Strategy Shares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Strategy Shares 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 Strategy Shares will offset losses from the drop in Strategy Shares' long position.
The idea behind First Trust Lunt and Strategy Shares Gold Hedged 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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