Correlation Between First Trust and VanEck Semiconductor

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

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

Diversification Opportunities for First Trust and VanEck Semiconductor

0.39

Correlation Coefficient

First Trust  VanEck Semiconductor

Weak diversification

The 3 months correlation between First and VanEck is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dow and VanEck Semiconductor ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Semiconductor ETF 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 Dow are associated (or correlated) with VanEck Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Semiconductor ETF has no effect on the direction of First Trust i.e., First Trust and VanEck Semiconductor go up and down completely randomly.

Pair Corralation between First Trust and VanEck Semiconductor

Considering the 90-day investment horizon First Trust Dow is expected to generate 0.58 times more return on investment than VanEck Semiconductor. However, First Trust Dow is 1.71 times less risky than VanEck Semiconductor. It trades about 0.36 of its potential returns per unit of risk. VanEck Semiconductor ETF is currently generating about 0.03 per unit of risk. If you would invest  20,104  in First Trust Dow on September 12, 2024 and sell it today you would earn a total of  5,052  from holding First Trust Dow or generate 25.13% return on investment over 90 days.

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

First Trust Dow  vs.  VanEck Semiconductor ETF

First Trust Dow

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Dow are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, First Trust displayed solid returns over the last few months and may actually be approaching a breakup point.

VanEck Semiconductor ETF

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Semiconductor ETF are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong primary indicators, VanEck Semiconductor is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Trust and VanEck Semiconductor

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

The idea behind First Trust Dow and VanEck Semiconductor ETF 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.