Correlation Between First Trust and XBTF

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

Diversification Opportunities for First Trust and XBTF

0.0

Correlation Coefficient

First Trust  XBTF

Pay attention - limited upside

The 3 months correlation between First and XBTF is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Indxx and XBTF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XBTF 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 XBTF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XBTF has no effect on the direction of First Trust i.e., First Trust and XBTF go up and down completely randomly.

Pair Corralation between First Trust and XBTF

If you would invest  3,377  in First Trust Indxx on December 2, 2024 and sell it today you would earn a total of  1,546  from holding First Trust Indxx or generate 45.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

First Trust Indxx  vs.  XBTF

First Trust Indxx

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Indxx are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

XBTF

Risk-Adjusted Performance

Very Weak

Over the last 90 days XBTF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, XBTF is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with First Trust and XBTF

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

The idea behind First Trust Indxx and XBTF 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.