Correlation Between First Trust and SPDR SP

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

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

Diversification Opportunities for First Trust and SPDR SP

0.83

Correlation Coefficient

First Trust  SPDR SP

Very poor diversification

The 3 months correlation between First and SPDR is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Emerging and SPDR SP World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP World 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 Emerging are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP World has no effect on the direction of First Trust i.e., First Trust and SPDR SP go up and down completely randomly.

Pair Corralation between First Trust and SPDR SP

Considering the 90-day investment horizon First Trust is expected to generate 1.24 times less return on investment than SPDR SP. In addition to that, First Trust is 1.21 times more volatile than SPDR SP World. It trades about 0.02 of its total potential returns per unit of risk. SPDR SP World is currently generating about 0.03 per unit of volatility. If you would invest  3,012  in SPDR SP World on October 5, 2024 and sell it today you would earn a total of  393.00  from holding SPDR SP World or generate 13.05% return on investment over 90 days.

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

First Trust Emerging  vs.  SPDR SP World

First Trust Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

SPDR SP World

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP World has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's fundamental indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with First Trust and SPDR SP

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

The idea behind First Trust Emerging and SPDR SP World 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.