Correlation Between First Trust and Global X

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

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

Diversification Opportunities for First Trust and Global X

0.29

Correlation Coefficient

First Trust  Global X

Modest diversification

The 3 months correlation between First and Global is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Intl and Global X MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X MSCI 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 Intl are associated (or correlated) with Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X MSCI has no effect on the direction of First Trust i.e., First Trust and Global X go up and down completely randomly.

Pair Corralation between First Trust and Global X

Considering the 90-day investment horizon First Trust Intl is expected to generate 0.7 times more return on investment than Global X. However, First Trust Intl is 1.43 times less risky than Global X. It trades about 0.06 of its potential returns per unit of risk. Global X MSCI is currently generating about 0.02 per unit of risk. If you would invest  1,524  in First Trust Intl on December 4, 2024 and sell it today you would earn a total of  146.00  from holding First Trust Intl or generate 9.58% 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 Intl  vs.  Global X MSCI

First Trust Intl

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Intl has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, First Trust is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Global X MSCI

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global X MSCI are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Global X is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Global X

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

The idea behind First Trust Intl and Global X MSCI 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.