Correlation Between First Trust and Exchange Traded

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

Diversification Opportunities for First Trust and Exchange Traded

0.83

Correlation Coefficient

First Trust  Exchange Traded

Very poor diversification

The 3 months correlation between First and Exchange is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dorsey and Exchange Traded Concepts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exchange Traded Concepts 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 Exchange Traded. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exchange Traded Concepts has no effect on the direction of First Trust i.e., First Trust and Exchange Traded go up and down completely randomly.

Pair Corralation between First Trust and Exchange Traded

Considering the 90-day investment horizon First Trust is expected to generate 1.64 times less return on investment than Exchange Traded. In addition to that, First Trust is 1.82 times more volatile than Exchange Traded Concepts. It trades about 0.03 of its total potential returns per unit of risk. Exchange Traded Concepts is currently generating about 0.08 per unit of volatility. If you would invest  2,104  in Exchange Traded Concepts on September 17, 2024 and sell it today you would earn a total of  132.00  from holding Exchange Traded Concepts or generate 6.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	29.03%
Values	Daily Returns

First Trust Dorsey  vs.  Exchange Traded Concepts

First Trust Dorsey

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Dorsey are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Exchange Traded Concepts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Exchange Traded Concepts has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Exchange Traded is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Trust and Exchange Traded

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

The idea behind First Trust Dorsey and Exchange Traded Concepts 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.