Correlation Between VanEck Oil and First Trust

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

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

Diversification Opportunities for VanEck Oil and First Trust

0.94

Correlation Coefficient

VanEck Oil  First Trust

Almost no diversification

The 3 months correlation between VanEck and First is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Oil Services and First Trust Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Energy and VanEck Oil 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 VanEck Oil Services 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 Energy has no effect on the direction of VanEck Oil i.e., VanEck Oil and First Trust go up and down completely randomly.

Pair Corralation between VanEck Oil and First Trust

Considering the 90-day investment horizon VanEck Oil is expected to generate 6.49 times less return on investment than First Trust. In addition to that, VanEck Oil is 1.05 times more volatile than First Trust Energy. It trades about 0.01 of its total potential returns per unit of risk. First Trust Energy is currently generating about 0.06 per unit of volatility. If you would invest  1,599  in First Trust Energy on December 24, 2024 and sell it today you would earn a total of  75.00  from holding First Trust Energy or generate 4.69% return on investment over 90 days.

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

VanEck Oil Services  vs.  First Trust Energy

VanEck Oil Services

Risk-Adjusted Performance

Very Weak

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

First Trust Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with VanEck Oil and First Trust

The main advantage of trading using opposite VanEck Oil and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VanEck Oil 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 VanEck Oil Services and First Trust Energy 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.