Correlation Between SPDR Nuveen and First Trust

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

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

Diversification Opportunities for SPDR Nuveen and First Trust

0.97

Correlation Coefficient

SPDR Nuveen  First Trust

Almost no diversification

The 3 months correlation between SPDR and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Nuveen Municipal and First Trust Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Municipal and SPDR Nuveen 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 SPDR Nuveen Municipal 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 Municipal has no effect on the direction of SPDR Nuveen i.e., SPDR Nuveen and First Trust go up and down completely randomly.

Pair Corralation between SPDR Nuveen and First Trust

Given the investment horizon of 90 days SPDR Nuveen is expected to generate 1.06 times less return on investment than First Trust. But when comparing it to its historical volatility, SPDR Nuveen Municipal is 1.18 times less risky than First Trust. It trades about 0.05 of its potential returns per unit of risk. First Trust Municipal is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,882  in First Trust Municipal on September 12, 2024 and sell it today you would earn a total of  37.00  from holding First Trust Municipal or generate 0.76% return on investment over 90 days.

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

SPDR Nuveen Municipal  vs.  First Trust Municipal

SPDR Nuveen Municipal

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Nuveen Municipal are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, SPDR Nuveen is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

First Trust Municipal

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Municipal are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, First Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with SPDR Nuveen and First Trust

The main advantage of trading using opposite SPDR Nuveen and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Nuveen 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 SPDR Nuveen Municipal and First Trust Municipal 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.