Correlation Between First Trust and ProShares Smart

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

Diversification Opportunities for First Trust and ProShares Smart

0.68

Correlation Coefficient

First Trust  ProShares Smart

Poor diversification

The 3 months correlation between First and ProShares is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Materials and ProShares Smart Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Smart Materials 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 ProShares Smart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Smart Materials has no effect on the direction of First Trust i.e., First Trust and ProShares Smart go up and down completely randomly.

Pair Corralation between First Trust and ProShares Smart

Considering the 90-day investment horizon First Trust Materials is expected to generate 1.22 times more return on investment than ProShares Smart. However, First Trust is 1.22 times more volatile than ProShares Smart Materials. It trades about -0.04 of its potential returns per unit of risk. ProShares Smart Materials is currently generating about -0.07 per unit of risk. If you would invest  6,361  in First Trust Materials on September 14, 2024 and sell it today you would lose (198.00) from holding First Trust Materials or give up 3.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

First Trust Materials  vs.  ProShares Smart Materials

First Trust Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Materials has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

ProShares Smart Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ProShares Smart Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ProShares Smart is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with First Trust and ProShares Smart

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

The idea behind First Trust Materials and ProShares Smart Materials 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.