Correlation Between MicroSectors Travel and First Trust

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

By analyzing existing cross correlation between MicroSectors Travel 3X and First Trust Consumer, you can compare the effects of market volatilities on MicroSectors Travel 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 MicroSectors Travel with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors Travel and First Trust.

Diversification Opportunities for MicroSectors Travel and First Trust

-0.83

Correlation Coefficient

MicroSectors Travel  First Trust

Pay attention - limited upside

The 3 months correlation between MicroSectors and First is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors Travel 3X and First Trust Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Consumer and MicroSectors Travel 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 MicroSectors Travel 3X 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 Consumer has no effect on the direction of MicroSectors Travel i.e., MicroSectors Travel and First Trust go up and down completely randomly.

Pair Corralation between MicroSectors Travel and First Trust

Given the investment horizon of 90 days MicroSectors Travel 3X is expected to under-perform the First Trust. In addition to that, MicroSectors Travel is 3.66 times more volatile than First Trust Consumer. It trades about -0.08 of its total potential returns per unit of risk. First Trust Consumer is currently generating about 0.06 per unit of volatility. If you would invest  4,872  in First Trust Consumer on September 26, 2024 and sell it today you would earn a total of  1,732  from holding First Trust Consumer or generate 35.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

MicroSectors Travel 3X  vs.  First Trust Consumer

MicroSectors Travel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroSectors Travel 3X has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

First Trust Consumer

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Consumer are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with MicroSectors Travel and First Trust

The main advantage of trading using opposite MicroSectors Travel and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors Travel 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 MicroSectors Travel 3X and First Trust Consumer 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.