Correlation Between First Trust and Simplify Equity

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

Diversification Opportunities for First Trust and Simplify Equity

0.66

Correlation Coefficient

First Trust  Simplify Equity

Poor diversification

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

Pair Corralation between First Trust and Simplify Equity

Given the investment horizon of 90 days First Trust is expected to generate 2.22 times less return on investment than Simplify Equity. But when comparing it to its historical volatility, First Trust Indxx is 1.07 times less risky than Simplify Equity. It trades about 0.12 of its potential returns per unit of risk. Simplify Equity PLUS is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  3,463  in Simplify Equity PLUS on September 1, 2024 and sell it today you would earn a total of  542.00  from holding Simplify Equity PLUS or generate 15.65% return on investment over 90 days.

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

First Trust Indxx  vs.  Simplify Equity PLUS

First Trust Indxx

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Indxx are ranked lower than 9 (%) 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 December 2024.

Simplify Equity PLUS

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Simplify Equity PLUS are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental drivers, Simplify Equity exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and Simplify Equity

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

The idea behind First Trust Indxx and Simplify Equity PLUS 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.