Correlation Between First Trust and STF Tactical

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

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

Diversification Opportunities for First Trust and STF Tactical

0.7

Correlation Coefficient

First Trust  STF Tactical

Poor diversification

The 3 months correlation between First and STF is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Nasdaq and STF Tactical Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STF Tactical Growth 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 Nasdaq are associated (or correlated) with STF Tactical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STF Tactical Growth has no effect on the direction of First Trust i.e., First Trust and STF Tactical go up and down completely randomly.

Pair Corralation between First Trust and STF Tactical

Given the investment horizon of 90 days First Trust is expected to generate 1.54 times less return on investment than STF Tactical. But when comparing it to its historical volatility, First Trust Nasdaq is 1.7 times less risky than STF Tactical. It trades about 0.09 of its potential returns per unit of risk. STF Tactical Growth is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,148  in STF Tactical Growth on December 4, 2024 and sell it today you would earn a total of  1,102  from holding STF Tactical Growth or generate 51.3% return on investment over 90 days.

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

First Trust Nasdaq  vs.  STF Tactical Growth

First Trust Nasdaq

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Nasdaq 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 recent stock price confusion, may contribute to short-horizon losses for the traders.

STF Tactical Growth

Risk-Adjusted Performance

Very Weak

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

Pair Trading with First Trust and STF Tactical

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

The idea behind First Trust Nasdaq and STF Tactical Growth 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.