Correlation Between First Trust and WisdomTree LargeCap

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

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

Diversification Opportunities for First Trust and WisdomTree LargeCap

0.59

Correlation Coefficient

First Trust  WisdomTree LargeCap

Very weak diversification

The 3 months correlation between First and WisdomTree is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Morningstar and WisdomTree LargeCap Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree LargeCap 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 Morningstar are associated (or correlated) with WisdomTree LargeCap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree LargeCap has no effect on the direction of First Trust i.e., First Trust and WisdomTree LargeCap go up and down completely randomly.

Pair Corralation between First Trust and WisdomTree LargeCap

Considering the 90-day investment horizon First Trust Morningstar is expected to generate 1.04 times more return on investment than WisdomTree LargeCap. However, First Trust is 1.04 times more volatile than WisdomTree LargeCap Dividend. It trades about 0.19 of its potential returns per unit of risk. WisdomTree LargeCap Dividend is currently generating about 0.04 per unit of risk. If you would invest  3,940  in First Trust Morningstar on December 29, 2024 and sell it today you would earn a total of  339.00  from holding First Trust Morningstar or generate 8.6% return on investment over 90 days.

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

First Trust Morningstar  vs.  WisdomTree LargeCap Dividend

First Trust Morningstar

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Morningstar are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in April 2025.

WisdomTree LargeCap

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree LargeCap Dividend are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, WisdomTree LargeCap is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Trust and WisdomTree LargeCap

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

The idea behind First Trust Morningstar and WisdomTree LargeCap 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..