Correlation Between First Trust and Volatility Shares

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

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

Diversification Opportunities for First Trust and Volatility Shares

0.41

Correlation Coefficient

First Trust  Volatility Shares

Very weak diversification

The 3 months correlation between First and Volatility is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Indxx and Volatility Shares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volatility Shares Trust 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 Indxx are associated (or correlated) with Volatility Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volatility Shares Trust has no effect on the direction of First Trust i.e., First Trust and Volatility Shares go up and down completely randomly.

Pair Corralation between First Trust and Volatility Shares

Given the investment horizon of 90 days First Trust is expected to generate 16.48 times less return on investment than Volatility Shares. But when comparing it to its historical volatility, First Trust Indxx is 8.28 times less risky than Volatility Shares. It trades about 0.13 of its potential returns per unit of risk. Volatility Shares Trust is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  2,387  in Volatility Shares Trust on September 12, 2024 and sell it today you would earn a total of  4,022  from holding Volatility Shares Trust or generate 168.5% return on investment over 90 days.

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

First Trust Indxx  vs.  Volatility Shares Trust

First Trust Indxx

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Indxx are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical and fundamental indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Volatility Shares Trust

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Volatility Shares Trust are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Volatility Shares showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and Volatility Shares

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

The idea behind First Trust Indxx and Volatility Shares Trust 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.