Correlation Between First Trust and Accelerate Arbitrage

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

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

Diversification Opportunities for First Trust and Accelerate Arbitrage

0.32

Correlation Coefficient

First Trust  Accelerate Arbitrage

Weak diversification

The 3 months correlation between First and Accelerate is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding First Trust AlphaDEX and Accelerate Arbitrage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Accelerate Arbitrage 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 AlphaDEX are associated (or correlated) with Accelerate Arbitrage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Accelerate Arbitrage has no effect on the direction of First Trust i.e., First Trust and Accelerate Arbitrage go up and down completely randomly.

Pair Corralation between First Trust and Accelerate Arbitrage

Assuming the 90 days trading horizon First Trust AlphaDEX is expected to under-perform the Accelerate Arbitrage. In addition to that, First Trust is 2.7 times more volatile than Accelerate Arbitrage. It trades about -0.02 of its total potential returns per unit of risk. Accelerate Arbitrage is currently generating about 0.11 per unit of volatility. If you would invest  2,598  in Accelerate Arbitrage on December 4, 2024 and sell it today you would earn a total of  52.00  from holding Accelerate Arbitrage or generate 2.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

First Trust AlphaDEX  vs.  Accelerate Arbitrage

First Trust AlphaDEX

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust AlphaDEX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Accelerate Arbitrage

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Accelerate Arbitrage are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, Accelerate Arbitrage 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 Accelerate Arbitrage

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

The idea behind First Trust AlphaDEX and Accelerate Arbitrage 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.