Correlation Between First Trust and ALPS

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

Diversification Opportunities for First Trust and ALPS

0.82

Correlation Coefficient

First Trust  ALPS

Very poor diversification

The 3 months correlation between First and ALPS is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Consumer and ALPS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPS 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 ALPS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALPS has no effect on the direction of First Trust i.e., First Trust and ALPS go up and down completely randomly.

Pair Corralation between First Trust and ALPS

Considering the 90-day investment horizon First Trust Consumer is expected to generate 0.97 times more return on investment than ALPS. However, First Trust Consumer is 1.03 times less risky than ALPS. It trades about 0.08 of its potential returns per unit of risk. ALPS is currently generating about 0.07 per unit of risk. If you would invest  5,249  in First Trust Consumer on September 21, 2024 and sell it today you would earn a total of  1,205  from holding First Trust Consumer or generate 22.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	84.76%
Values	Daily Returns

First Trust Consumer  vs.  ALPS

First Trust Consumer

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Consumer are ranked lower than 3 (%) 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

ALPS

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days ALPS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, ALPS showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and ALPS

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

The idea behind First Trust Consumer and ALPS 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.

Check out your portfolio center.

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 Stocks Directory module to find actively traded stocks across global markets.