Correlation Between First Trust and VanEck Retail

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

Diversification Opportunities for First Trust and VanEck Retail

0.79

Correlation Coefficient

First Trust  VanEck Retail

Poor diversification

The 3 months correlation between First and VanEck is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Consumer and VanEck Retail ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Retail 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 Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Retail ETF has no effect on the direction of First Trust i.e., First Trust and VanEck Retail go up and down completely randomly.

Pair Corralation between First Trust and VanEck Retail

Considering the 90-day investment horizon First Trust Consumer is expected to under-perform the VanEck Retail. In addition to that, First Trust is 1.28 times more volatile than VanEck Retail ETF. It trades about -0.1 of its total potential returns per unit of risk. VanEck Retail ETF is currently generating about 0.02 per unit of volatility. If you would invest  22,399  in VanEck Retail ETF on December 28, 2024 and sell it today you would earn a total of  220.00  from holding VanEck Retail ETF or generate 0.98% return on investment over 90 days.

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

First Trust Consumer  vs.  VanEck Retail 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 Retail ETF

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Retail ETF are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, VanEck Retail is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Trust and VanEck Retail

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

The idea behind First Trust Consumer and VanEck Retail 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.