Correlation Between First Trust and Fidelity Covington

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

By analyzing existing cross correlation between First Trust NASDAQ and Fidelity Covington Trust, you can compare the effects of market volatilities on First Trust and Fidelity Covington 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 Fidelity Covington. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Fidelity Covington.

Diversification Opportunities for First Trust and Fidelity Covington

0.48

Correlation Coefficient

First Trust  Fidelity Covington

Very weak diversification

The 3 months correlation between First and Fidelity is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding First Trust NASDAQ and Fidelity Covington Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Covington Trust 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 NASDAQ are associated (or correlated) with Fidelity Covington. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Covington Trust has no effect on the direction of First Trust i.e., First Trust and Fidelity Covington go up and down completely randomly.

Pair Corralation between First Trust and Fidelity Covington

Given the investment horizon of 90 days First Trust NASDAQ is expected to under-perform the Fidelity Covington. In addition to that, First Trust is 1.28 times more volatile than Fidelity Covington Trust. It trades about -0.14 of its total potential returns per unit of risk. Fidelity Covington Trust is currently generating about -0.04 per unit of volatility. If you would invest  1,357  in Fidelity Covington Trust on December 29, 2024 and sell it today you would lose (55.00) from holding Fidelity Covington Trust or give up 4.05% of portfolio value over 90 days.

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

First Trust NASDAQ  vs.  Fidelity Covington Trust

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. In spite of unfluctuating performance in the last few months, the Etf's essential indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the ETF investors.

Fidelity Covington Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fidelity Covington Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Fidelity Covington is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with First Trust and Fidelity Covington

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

The idea behind First Trust NASDAQ and Fidelity Covington Trust 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.