Correlation Between BetaPro SP and First Trust

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

By analyzing existing cross correlation between BetaPro SP 500 and First Trust Cboe, you can compare the effects of market volatilities on BetaPro SP and First Trust 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 BetaPro SP with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of BetaPro SP and First Trust.

Diversification Opportunities for BetaPro SP and First Trust

-0.73

Correlation Coefficient

BetaPro SP  First Trust

Pay attention - limited upside

The 3 months correlation between BetaPro and First is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding BetaPro SP 500 and First Trust Cboe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Cboe and BetaPro SP 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 BetaPro SP 500 are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Cboe has no effect on the direction of BetaPro SP i.e., BetaPro SP and First Trust go up and down completely randomly.

Pair Corralation between BetaPro SP and First Trust

Assuming the 90 days trading horizon BetaPro SP 500 is expected to under-perform the First Trust. In addition to that, BetaPro SP is 1.47 times more volatile than First Trust Cboe. It trades about -0.06 of its total potential returns per unit of risk. First Trust Cboe is currently generating about 0.09 per unit of volatility. If you would invest  3,466  in First Trust Cboe on October 24, 2024 and sell it today you would earn a total of  927.00  from holding First Trust Cboe or generate 26.75% return on investment over 90 days.

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

BetaPro SP 500  vs.  First Trust Cboe

BetaPro SP 500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BetaPro SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, BetaPro SP is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

First Trust Cboe

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Cboe are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, First Trust is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BetaPro SP and First Trust

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

The idea behind BetaPro SP 500 and First Trust Cboe 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.