Correlation Between First Trust and VanEck Low

Can any of the company-specific risk be diversified away by investing in both First Trust and VanEck Low 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 VanEck Low 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 VanEck Low Carbon, you can compare the effects of market volatilities on First Trust and VanEck Low 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 VanEck Low. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and VanEck Low.

Diversification Opportunities for First Trust and VanEck Low

0.49

Correlation Coefficient

First Trust  VanEck Low

Very weak diversification

The 3 months correlation between First and VanEck is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding First Trust NASDAQ and VanEck Low Carbon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Low Carbon 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 VanEck Low. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Low Carbon has no effect on the direction of First Trust i.e., First Trust and VanEck Low go up and down completely randomly.

Pair Corralation between First Trust and VanEck Low

Given the investment horizon of 90 days First Trust NASDAQ is expected to generate 1.61 times more return on investment than VanEck Low. However, First Trust is 1.61 times more volatile than VanEck Low Carbon. It trades about 0.01 of its potential returns per unit of risk. VanEck Low Carbon is currently generating about 0.01 per unit of risk. If you would invest  3,637  in First Trust NASDAQ on September 14, 2024 and sell it today you would lose (46.00) from holding First Trust NASDAQ or give up 1.26% 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.  VanEck Low Carbon

First Trust NASDAQ

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust NASDAQ are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, First Trust is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

VanEck Low Carbon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VanEck Low Carbon has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, VanEck Low is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with First Trust and VanEck Low

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

The idea behind First Trust NASDAQ and VanEck Low Carbon 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.