Correlation Between First Trust and WisdomTree Emerging

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

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

Diversification Opportunities for First Trust and WisdomTree Emerging

-0.84

Correlation Coefficient

First Trust  WisdomTree Emerging

Pay attention - limited upside

The 3 months correlation between First and WisdomTree is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding First Trust BuyWrite and WisdomTree Emerging Currency in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Emerging 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 BuyWrite are associated (or correlated) with WisdomTree Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Emerging has no effect on the direction of First Trust i.e., First Trust and WisdomTree Emerging go up and down completely randomly.

Pair Corralation between First Trust and WisdomTree Emerging

Given the investment horizon of 90 days First Trust BuyWrite is expected to generate 1.25 times more return on investment than WisdomTree Emerging. However, First Trust is 1.25 times more volatile than WisdomTree Emerging Currency. It trades about 0.24 of its potential returns per unit of risk. WisdomTree Emerging Currency is currently generating about -0.1 per unit of risk. If you would invest  2,222  in First Trust BuyWrite on September 17, 2024 and sell it today you would earn a total of  159.00  from holding First Trust BuyWrite or generate 7.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

First Trust BuyWrite  vs.  WisdomTree Emerging Currency

First Trust BuyWrite

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust BuyWrite are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WisdomTree Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Emerging Currency has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, WisdomTree Emerging is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with First Trust and WisdomTree Emerging

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

The idea behind First Trust BuyWrite and WisdomTree Emerging Currency 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.