Correlation Between First Trust and Utilities Select

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

Diversification Opportunities for First Trust and Utilities Select

0.76

Correlation Coefficient

First Trust  Utilities Select

Poor diversification

The 3 months correlation between First and Utilities is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Materials and Utilities Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities Select Sector 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 Utilities Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Select Sector has no effect on the direction of First Trust i.e., First Trust and Utilities Select go up and down completely randomly.

Pair Corralation between First Trust and Utilities Select

Considering the 90-day investment horizon First Trust Materials is expected to under-perform the Utilities Select. In addition to that, First Trust is 1.18 times more volatile than Utilities Select Sector. It trades about -0.02 of its total potential returns per unit of risk. Utilities Select Sector is currently generating about 0.1 per unit of volatility. If you would invest  5,719  in Utilities Select Sector on October 5, 2024 and sell it today you would earn a total of  1,989  from holding Utilities Select Sector or generate 34.78% 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.  Utilities Select Sector

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 weak performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Utilities Select Sector

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with First Trust and Utilities Select

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

The idea behind First Trust Materials and Utilities Select Sector 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..