Correlation Between First Trust and VanEck Oil

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

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

Diversification Opportunities for First Trust and VanEck Oil

0.95

Correlation Coefficient

First Trust  VanEck Oil

Almost no diversification

The 3 months correlation between First and VanEck is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Energy and VanEck Oil Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Oil Services 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 Energy are associated (or correlated) with VanEck Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Oil Services has no effect on the direction of First Trust i.e., First Trust and VanEck Oil go up and down completely randomly.

Pair Corralation between First Trust and VanEck Oil

Considering the 90-day investment horizon First Trust Energy is expected to generate 0.96 times more return on investment than VanEck Oil. However, First Trust Energy is 1.04 times less risky than VanEck Oil. It trades about 0.03 of its potential returns per unit of risk. VanEck Oil Services is currently generating about 0.0 per unit of risk. If you would invest  1,616  in First Trust Energy on December 28, 2024 and sell it today you would earn a total of  31.00  from holding First Trust Energy or generate 1.92% return on investment over 90 days.

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

First Trust Energy  vs.  VanEck Oil Services

First Trust Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

VanEck Oil Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days VanEck Oil Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, VanEck Oil is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Trust and VanEck Oil

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

The idea behind First Trust Energy and VanEck Oil Services 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.