Correlation Between First Trust and Amplify CWP

Can any of the company-specific risk be diversified away by investing in both First Trust and Amplify CWP 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 Amplify CWP 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 Amplify CWP Enhanced, you can compare the effects of market volatilities on First Trust and Amplify CWP 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 Amplify CWP. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Amplify CWP.

Diversification Opportunities for First Trust and Amplify CWP

0.82

Correlation Coefficient

First Trust  Amplify CWP

Very poor diversification

The 3 months correlation between First and Amplify is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding First Trust BuyWrite and Amplify CWP Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amplify CWP Enhanced 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 Amplify CWP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amplify CWP Enhanced has no effect on the direction of First Trust i.e., First Trust and Amplify CWP go up and down completely randomly.

Pair Corralation between First Trust and Amplify CWP

Given the investment horizon of 90 days First Trust BuyWrite is expected to generate 0.87 times more return on investment than Amplify CWP. However, First Trust BuyWrite is 1.15 times less risky than Amplify CWP. It trades about 0.11 of its potential returns per unit of risk. Amplify CWP Enhanced is currently generating about 0.01 per unit of risk. If you would invest  2,245  in First Trust BuyWrite on September 22, 2024 and sell it today you would earn a total of  92.00  from holding First Trust BuyWrite or generate 4.1% return on investment over 90 days.

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

First Trust BuyWrite  vs.  Amplify CWP Enhanced

First Trust BuyWrite

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust BuyWrite are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, First Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Amplify CWP Enhanced

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with First Trust and Amplify CWP

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

The idea behind First Trust BuyWrite and Amplify CWP Enhanced 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.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.