Correlation Between First Trust and KraneShares Emerging

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

Diversification Opportunities for First Trust and KraneShares Emerging

0.61

Correlation Coefficient

First Trust  KraneShares Emerging

Poor diversification

The 3 months correlation between First and KraneShares is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Nasdaq and KraneShares Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KraneShares 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 Nasdaq are associated (or correlated) with KraneShares Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KraneShares Emerging has no effect on the direction of First Trust i.e., First Trust and KraneShares Emerging go up and down completely randomly.

Pair Corralation between First Trust and KraneShares Emerging

Given the investment horizon of 90 days First Trust Nasdaq is expected to generate 1.2 times more return on investment than KraneShares Emerging. However, First Trust is 1.2 times more volatile than KraneShares Emerging Markets. It trades about 0.06 of its potential returns per unit of risk. KraneShares Emerging Markets is currently generating about 0.02 per unit of risk. If you would invest  5,949  in First Trust Nasdaq on October 10, 2024 and sell it today you would earn a total of  3,171  from holding First Trust Nasdaq or generate 53.3% 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.  KraneShares Emerging Markets

First Trust Nasdaq

Risk-Adjusted Performance

0 of 100

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 quite persistent basic indicators, First Trust is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

KraneShares Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KraneShares Emerging Markets has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Etf's primary indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Pair Trading with First Trust and KraneShares Emerging

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

The idea behind First Trust Nasdaq and KraneShares Emerging Markets 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..