Correlation Between SPDR SSGA and First Trust

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

By analyzing existing cross correlation between SPDR SSGA Fixed and First Trust TCW, you can compare the effects of market volatilities on SPDR SSGA and First Trust 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 SPDR SSGA with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SSGA and First Trust.

Diversification Opportunities for SPDR SSGA and First Trust

0.9

Correlation Coefficient

SPDR SSGA  First Trust

Almost no diversification

The 3 months correlation between SPDR and First is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SSGA Fixed and First Trust TCW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust TCW and SPDR SSGA 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 SPDR SSGA Fixed are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust TCW has no effect on the direction of SPDR SSGA i.e., SPDR SSGA and First Trust go up and down completely randomly.

Pair Corralation between SPDR SSGA and First Trust

Given the investment horizon of 90 days SPDR SSGA is expected to generate 1.91 times less return on investment than First Trust. In addition to that, SPDR SSGA is 1.56 times more volatile than First Trust TCW. It trades about 0.03 of its total potential returns per unit of risk. First Trust TCW is currently generating about 0.09 per unit of volatility. If you would invest  2,186  in First Trust TCW on September 20, 2024 and sell it today you would earn a total of  280.00  from holding First Trust TCW or generate 12.81% return on investment over 90 days.

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

SPDR SSGA Fixed  vs.  First Trust TCW

SPDR SSGA Fixed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SSGA Fixed has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, SPDR SSGA is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

First Trust TCW

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with SPDR SSGA and First Trust

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

The idea behind SPDR SSGA Fixed and First Trust TCW 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.