Correlation Between First Trust and IndexIQ

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

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

Diversification Opportunities for First Trust and IndexIQ

0.61

Correlation Coefficient

First Trust  IndexIQ

Poor diversification

The 3 months correlation between First and IndexIQ is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding First Trust SP and IndexIQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IndexIQ 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 SP are associated (or correlated) with IndexIQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IndexIQ has no effect on the direction of First Trust i.e., First Trust and IndexIQ go up and down completely randomly.

Pair Corralation between First Trust and IndexIQ

Considering the 90-day investment horizon First Trust SP is expected to generate 1.04 times more return on investment than IndexIQ. However, First Trust is 1.04 times more volatile than IndexIQ. It trades about 0.03 of its potential returns per unit of risk. IndexIQ is currently generating about 0.02 per unit of risk. If you would invest  2,341  in First Trust SP on October 10, 2024 and sell it today you would earn a total of  352.00  from holding First Trust SP or generate 15.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.75%
Values	Daily Returns

First Trust SP  vs.  IndexIQ

First Trust SP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust SP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, First Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

IndexIQ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IndexIQ has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, IndexIQ is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with First Trust and IndexIQ

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

The idea behind First Trust SP and IndexIQ 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.