Correlation Between First Trust and ProShares Hedge

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

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

Diversification Opportunities for First Trust and ProShares Hedge

0.92

Correlation Coefficient

First Trust  ProShares Hedge

Almost no diversification

The 3 months correlation between First and ProShares is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding First Trust LongShort and ProShares Hedge Replication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Hedge Repl 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 LongShort are associated (or correlated) with ProShares Hedge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Hedge Repl has no effect on the direction of First Trust i.e., First Trust and ProShares Hedge go up and down completely randomly.

Pair Corralation between First Trust and ProShares Hedge

Given the investment horizon of 90 days First Trust LongShort is expected to generate 2.33 times more return on investment than ProShares Hedge. However, First Trust is 2.33 times more volatile than ProShares Hedge Replication. It trades about 0.3 of its potential returns per unit of risk. ProShares Hedge Replication is currently generating about 0.13 per unit of risk. If you would invest  6,537  in First Trust LongShort on September 17, 2024 and sell it today you would earn a total of  153.00  from holding First Trust LongShort or generate 2.34% return on investment over 90 days.

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

First Trust LongShort  vs.  ProShares Hedge Replication

First Trust LongShort

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust LongShort are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile essential indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ProShares Hedge Repl

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Hedge Replication are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, ProShares Hedge 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 ProShares Hedge

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

The idea behind First Trust LongShort and ProShares Hedge Replication 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.