Correlation Between First Trust and Main Thematic

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

Diversification Opportunities for First Trust and Main Thematic

0.43

Correlation Coefficient

First Trust  Main Thematic

Very weak diversification

The 3 months correlation between First and Main is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding First Trust NASDAQ and Main Thematic Innovation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main Thematic Innovation 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 Main Thematic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main Thematic Innovation has no effect on the direction of First Trust i.e., First Trust and Main Thematic go up and down completely randomly.

Pair Corralation between First Trust and Main Thematic

Given the investment horizon of 90 days First Trust NASDAQ is expected to under-perform the Main Thematic. But the etf apears to be less risky and, when comparing its historical volatility, First Trust NASDAQ is 1.12 times less risky than Main Thematic. The etf trades about -0.15 of its potential returns per unit of risk. The Main Thematic Innovation is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  2,170  in Main Thematic Innovation on October 3, 2024 and sell it today you would lose (86.00) from holding Main Thematic Innovation or give up 3.96% 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.  Main Thematic Innovation

First Trust NASDAQ

Risk-Adjusted Performance

0 of 100

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 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.

Main Thematic Innovation

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Main Thematic Innovation are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Main Thematic unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and Main Thematic

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

The idea behind First Trust NASDAQ and Main Thematic Innovation 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.