Correlation Between First Trust and VanEck Gaming

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

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

Diversification Opportunities for First Trust and VanEck Gaming

0.55

Correlation Coefficient

First Trust  VanEck Gaming

Very weak diversification

The 3 months correlation between First and VanEck is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Consumer and VanEck Gaming ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Gaming ETF 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 Consumer are associated (or correlated) with VanEck Gaming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Gaming ETF has no effect on the direction of First Trust i.e., First Trust and VanEck Gaming go up and down completely randomly.

Pair Corralation between First Trust and VanEck Gaming

Considering the 90-day investment horizon First Trust Consumer is expected to under-perform the VanEck Gaming. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Consumer is 1.08 times less risky than VanEck Gaming. The etf trades about -0.12 of its potential returns per unit of risk. The VanEck Gaming ETF is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  4,091  in VanEck Gaming ETF on December 27, 2024 and sell it today you would lose (154.00) from holding VanEck Gaming ETF or give up 3.76% of portfolio value over 90 days.

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

First Trust Consumer  vs.  VanEck Gaming ETF

First Trust Consumer

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Consumer has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

VanEck Gaming ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days VanEck Gaming ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking indicators, VanEck Gaming is not utilizing all of its potentials. The new stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with First Trust and VanEck Gaming

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

The idea behind First Trust Consumer and VanEck Gaming ETF 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.