Correlation Between First Trust and Sprott Energy

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

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

Diversification Opportunities for First Trust and Sprott Energy

0.66

Correlation Coefficient

First Trust  Sprott Energy

Poor diversification

The 3 months correlation between First and Sprott is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Materials and Sprott Energy Transition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Energy Transition 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 Materials are associated (or correlated) with Sprott Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Energy Transition has no effect on the direction of First Trust i.e., First Trust and Sprott Energy go up and down completely randomly.

Pair Corralation between First Trust and Sprott Energy

Considering the 90-day investment horizon First Trust is expected to generate 5.44 times less return on investment than Sprott Energy. But when comparing it to its historical volatility, First Trust Materials is 1.58 times less risky than Sprott Energy. It trades about 0.01 of its potential returns per unit of risk. Sprott Energy Transition is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,521  in Sprott Energy Transition on December 20, 2024 and sell it today you would earn a total of  68.00  from holding Sprott Energy Transition or generate 4.47% return on investment over 90 days.

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

First Trust Materials  vs.  Sprott Energy Transition

First Trust Materials

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Materials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, First Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Sprott Energy Transition

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sprott Energy Transition are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Sprott Energy is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Sprott Energy

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

The idea behind First Trust Materials and Sprott Energy Transition 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.