Correlation Between First Trust and SHP ETF

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

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

Diversification Opportunities for First Trust and SHP ETF

0.97

Correlation Coefficient

First Trust  SHP ETF

Almost no diversification

The 3 months correlation between First and SHP is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Enhanced and SHP ETF Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SHP ETF Trust 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 Enhanced are associated (or correlated) with SHP ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SHP ETF Trust has no effect on the direction of First Trust i.e., First Trust and SHP ETF go up and down completely randomly.

Pair Corralation between First Trust and SHP ETF

Given the investment horizon of 90 days First Trust Enhanced is expected to generate 0.48 times more return on investment than SHP ETF. However, First Trust Enhanced is 2.09 times less risky than SHP ETF. It trades about 0.7 of its potential returns per unit of risk. SHP ETF Trust is currently generating about 0.3 per unit of risk. If you would invest  5,930  in First Trust Enhanced on December 27, 2024 and sell it today you would earn a total of  69.00  from holding First Trust Enhanced or generate 1.16% 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 Enhanced  vs.  SHP ETF Trust

First Trust Enhanced

Risk-Adjusted Performance

Excellent

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Enhanced are ranked lower than 55 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

SHP ETF Trust

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SHP ETF Trust are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, SHP ETF is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Trust and SHP ETF

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

The idea behind First Trust Enhanced and SHP ETF Trust 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.