Correlation Between First Trust and Dynamic Active

Can any of the company-specific risk be diversified away by investing in both First Trust and Dynamic Active 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 Dynamic Active 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 Dynamic Active Ultra, you can compare the effects of market volatilities on First Trust and Dynamic Active 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 Dynamic Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Dynamic Active.

Diversification Opportunities for First Trust and Dynamic Active

0.91

Correlation Coefficient

First Trust  Dynamic Active

Almost no diversification

The 3 months correlation between First and Dynamic is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding First Trust AlphaDEX and Dynamic Active Ultra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynamic Active Ultra 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 Dynamic Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynamic Active Ultra has no effect on the direction of First Trust i.e., First Trust and Dynamic Active go up and down completely randomly.

Pair Corralation between First Trust and Dynamic Active

Assuming the 90 days trading horizon First Trust AlphaDEX is expected to generate 5.83 times more return on investment than Dynamic Active. However, First Trust is 5.83 times more volatile than Dynamic Active Ultra. It trades about 0.13 of its potential returns per unit of risk. Dynamic Active Ultra is currently generating about 0.11 per unit of risk. If you would invest  10,066  in First Trust AlphaDEX on September 12, 2024 and sell it today you would earn a total of  330.00  from holding First Trust AlphaDEX or generate 3.28% return on investment over 90 days.

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

First Trust AlphaDEX  vs.  Dynamic Active Ultra

First Trust AlphaDEX

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust AlphaDEX are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, First Trust displayed solid returns over the last few months and may actually be approaching a breakup point.

Dynamic Active Ultra

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dynamic Active Ultra are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Dynamic Active 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 Dynamic Active

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

The idea behind First Trust AlphaDEX and Dynamic Active Ultra 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.