Correlation Between First Trust and MicroSectors Travel

Can any of the company-specific risk be diversified away by investing in both First Trust and MicroSectors Travel 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 MicroSectors Travel 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 MicroSectors Travel 3X, you can compare the effects of market volatilities on First Trust and MicroSectors Travel 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 MicroSectors Travel. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and MicroSectors Travel.

Diversification Opportunities for First Trust and MicroSectors Travel

-0.83

Correlation Coefficient

First Trust  MicroSectors Travel

Pay attention - limited upside

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

Pair Corralation between First Trust and MicroSectors Travel

Considering the 90-day investment horizon First Trust Consumer is expected to generate 0.27 times more return on investment than MicroSectors Travel. However, First Trust Consumer is 3.66 times less risky than MicroSectors Travel. It trades about 0.06 of its potential returns per unit of risk. MicroSectors Travel 3X is currently generating about -0.08 per unit of risk. If you would invest  4,872  in First Trust Consumer on September 26, 2024 and sell it today you would earn a total of  1,732  from holding First Trust Consumer or generate 35.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

First Trust Consumer  vs.  MicroSectors Travel 3X

First Trust Consumer

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Consumer are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

MicroSectors Travel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroSectors Travel 3X has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

Pair Trading with First Trust and MicroSectors Travel

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

The idea behind First Trust Consumer and MicroSectors Travel 3X 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.