Correlation Between First Trust and VanEck Natural
Can any of the company-specific risk be diversified away by investing in both First Trust and VanEck Natural 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 VanEck Natural into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Water and VanEck Natural Resources, you can compare the effects of market volatilities on First Trust and VanEck Natural 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 VanEck Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and VanEck Natural.
Diversification Opportunities for First Trust and VanEck Natural
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between First and VanEck is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Water and VanEck Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Natural Resources 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 Water are associated (or correlated) with VanEck Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Natural Resources has no effect on the direction of First Trust i.e., First Trust and VanEck Natural go up and down completely randomly.
Pair Corralation between First Trust and VanEck Natural
Considering the 90-day investment horizon First Trust Water is expected to generate 0.89 times more return on investment than VanEck Natural. However, First Trust Water is 1.12 times less risky than VanEck Natural. It trades about -0.34 of its potential returns per unit of risk. VanEck Natural Resources is currently generating about -0.36 per unit of risk. If you would invest 11,038 in First Trust Water on September 26, 2024 and sell it today you would lose (705.00) from holding First Trust Water or give up 6.39% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
First Trust Water vs. VanEck Natural Resources
Performance |
Timeline |
First Trust Water |
VanEck Natural Resources |
First Trust and VanEck Natural Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with First Trust and VanEck Natural
The main advantage of trading using opposite First Trust and VanEck Natural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, VanEck Natural 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 VanEck Natural will offset losses from the drop in VanEck Natural's long position.The idea behind First Trust Water and VanEck Natural Resources 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.VanEck Natural vs. Invesco MSCI Global | VanEck Natural vs. WisdomTree Continuous Commodity | VanEck Natural vs. VanEck UraniumNuclear Energy | VanEck Natural vs. SPDR SP Global |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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