Correlation Between First Trust and CI WisdomTree

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

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

Diversification Opportunities for First Trust and CI WisdomTree

0.52

Correlation Coefficient

First Trust  CI WisdomTree

Very weak diversification

The 3 months correlation between First and JAPN is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Indxx and CI WisdomTree Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CI WisdomTree Japan 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 Indxx are associated (or correlated) with CI WisdomTree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CI WisdomTree Japan has no effect on the direction of First Trust i.e., First Trust and CI WisdomTree go up and down completely randomly.

Pair Corralation between First Trust and CI WisdomTree

Assuming the 90 days trading horizon First Trust Indxx is expected to generate 1.15 times more return on investment than CI WisdomTree. However, First Trust is 1.15 times more volatile than CI WisdomTree Japan. It trades about 0.15 of its potential returns per unit of risk. CI WisdomTree Japan is currently generating about 0.06 per unit of risk. If you would invest  1,153  in First Trust Indxx on November 29, 2024 and sell it today you would earn a total of  104.00  from holding First Trust Indxx or generate 9.02% return on investment over 90 days.

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

First Trust Indxx  vs.  CI WisdomTree Japan

First Trust Indxx

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Indxx are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in March 2025.

CI WisdomTree Japan

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CI WisdomTree Japan are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, CI WisdomTree is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Trust and CI WisdomTree

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

The idea behind First Trust Indxx and CI WisdomTree Japan 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.