Correlation Between First Trust and SPDR Russell

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

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

Diversification Opportunities for First Trust and SPDR Russell

0.96

Correlation Coefficient

First Trust  SPDR Russell

Almost no diversification

The 3 months correlation between First and SPDR is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dorsey and SPDR Russell Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Russell Small 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 Dorsey are associated (or correlated) with SPDR Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Russell Small has no effect on the direction of First Trust i.e., First Trust and SPDR Russell go up and down completely randomly.

Pair Corralation between First Trust and SPDR Russell

Allowing for the 90-day total investment horizon First Trust Dorsey is expected to generate 1.31 times more return on investment than SPDR Russell. However, First Trust is 1.31 times more volatile than SPDR Russell Small. It trades about 0.07 of its potential returns per unit of risk. SPDR Russell Small is currently generating about -0.01 per unit of risk. If you would invest  6,126  in First Trust Dorsey on September 12, 2024 and sell it today you would earn a total of  91.50  from holding First Trust Dorsey or generate 1.49% 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 Dorsey  vs.  SPDR Russell Small

First Trust Dorsey

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Dorsey are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SPDR Russell Small

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Russell Small are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating primary indicators, SPDR Russell may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Trust and SPDR Russell

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

The idea behind First Trust Dorsey and SPDR Russell Small 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.