Correlation Between First Trust and ProShares Trust

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

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

Diversification Opportunities for First Trust and ProShares Trust

-0.44

Correlation Coefficient

First Trust  ProShares Trust

Very good diversification

The 3 months correlation between First and ProShares is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and ProShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Trust 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 Exchange Traded are associated (or correlated) with ProShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Trust has no effect on the direction of First Trust i.e., First Trust and ProShares Trust go up and down completely randomly.

Pair Corralation between First Trust and ProShares Trust

Assuming the 90 days trading horizon First Trust is expected to generate 4.68 times less return on investment than ProShares Trust. But when comparing it to its historical volatility, First Trust Exchange Traded is 12.64 times less risky than ProShares Trust. It trades about 0.11 of its potential returns per unit of risk. ProShares Trust is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  19,456  in ProShares Trust on September 16, 2024 and sell it today you would earn a total of  55,544  from holding ProShares Trust or generate 285.49% return on investment over 90 days.

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

First Trust Exchange Traded  vs.  ProShares Trust

First Trust Exchange

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, First Trust showed solid returns over the last few months and may actually be approaching a breakup point.

ProShares Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, ProShares Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and ProShares Trust

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

The idea behind First Trust Exchange Traded and ProShares Trust 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.