Correlation Between First Trust and VanEck Environmental

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

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

Diversification Opportunities for First Trust and VanEck Environmental

0.35

Correlation Coefficient

First Trust  VanEck Environmental

Weak diversification

The 3 months correlation between First and VanEck is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding First Trust IndustrialsProduce and VanEck Environmental Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Environmental 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 IndustrialsProducer are associated (or correlated) with VanEck Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Environmental has no effect on the direction of First Trust i.e., First Trust and VanEck Environmental go up and down completely randomly.

Pair Corralation between First Trust and VanEck Environmental

Considering the 90-day investment horizon First Trust IndustrialsProducer is expected to under-perform the VanEck Environmental. In addition to that, First Trust is 1.39 times more volatile than VanEck Environmental Services. It trades about -0.07 of its total potential returns per unit of risk. VanEck Environmental Services is currently generating about 0.07 per unit of volatility. If you would invest  3,440  in VanEck Environmental Services on December 27, 2024 and sell it today you would earn a total of  111.00  from holding VanEck Environmental Services or generate 3.23% return on investment over 90 days.

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

First Trust IndustrialsProduce  vs.  VanEck Environmental Services

First Trust Industri

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust IndustrialsProducer has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, First Trust is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

VanEck Environmental

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Environmental Services are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, VanEck Environmental is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and VanEck Environmental

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

The idea behind First Trust IndustrialsProducer and VanEck Environmental 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.