Correlation Between NEOS ETF and First Trust

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

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

Diversification Opportunities for NEOS ETF and First Trust

0.42

Correlation Coefficient

NEOS ETF  First Trust

Very weak diversification

The 3 months correlation between NEOS and First is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding NEOS ETF Trust and First Trust Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Nasdaq and NEOS ETF 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 NEOS ETF Trust 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 Nasdaq has no effect on the direction of NEOS ETF i.e., NEOS ETF and First Trust go up and down completely randomly.

Pair Corralation between NEOS ETF and First Trust

Given the investment horizon of 90 days NEOS ETF Trust is expected to generate 0.84 times more return on investment than First Trust. However, NEOS ETF Trust is 1.19 times less risky than First Trust. It trades about 0.13 of its potential returns per unit of risk. First Trust Nasdaq is currently generating about -0.03 per unit of risk. If you would invest  2,564  in NEOS ETF Trust on November 28, 2024 and sell it today you would earn a total of  114.00  from holding NEOS ETF Trust or generate 4.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.55%
Values	Daily Returns

NEOS ETF Trust  vs.  First Trust Nasdaq

NEOS ETF Trust

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NEOS ETF Trust are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, NEOS ETF is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

First Trust Nasdaq

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Nasdaq has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, First Trust is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with NEOS ETF and First Trust

The main advantage of trading using opposite NEOS ETF and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NEOS ETF 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 NEOS ETF Trust and First Trust Nasdaq 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.