Correlation Between Simplify Exchange and First Trust

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

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

Diversification Opportunities for Simplify Exchange and First Trust

0.99

Correlation Coefficient

Simplify Exchange  First Trust

No risk reduction

The 3 months correlation between Simplify and First is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Simplify Exchange Traded and First Trust Low in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Low and Simplify Exchange 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 Simplify Exchange Traded 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 Low has no effect on the direction of Simplify Exchange i.e., Simplify Exchange and First Trust go up and down completely randomly.

Pair Corralation between Simplify Exchange and First Trust

Given the investment horizon of 90 days Simplify Exchange is expected to generate 1.0 times less return on investment than First Trust. In addition to that, Simplify Exchange is 1.69 times more volatile than First Trust Low. It trades about 0.15 of its total potential returns per unit of risk. First Trust Low is currently generating about 0.25 per unit of volatility. If you would invest  4,810  in First Trust Low on December 29, 2024 and sell it today you would earn a total of  93.00  from holding First Trust Low or generate 1.93% return on investment over 90 days.

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

Simplify Exchange Traded  vs.  First Trust Low

Simplify Exchange Traded

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Simplify Exchange Traded are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Simplify Exchange is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

First Trust Low

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Low are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, First Trust is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Simplify Exchange and First Trust

The main advantage of trading using opposite Simplify Exchange and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Simplify Exchange 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 Simplify Exchange Traded and First Trust Low 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.