Correlation Between ALPS REIT and First Trust

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

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

Diversification Opportunities for ALPS REIT and First Trust

0.75

Correlation Coefficient

ALPS REIT  First Trust

Poor diversification

The 3 months correlation between ALPS and First is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding ALPS REIT Dividend and First Trust Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Exchange and ALPS REIT 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 ALPS REIT Dividend 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 Exchange has no effect on the direction of ALPS REIT i.e., ALPS REIT and First Trust go up and down completely randomly.

Pair Corralation between ALPS REIT and First Trust

Given the investment horizon of 90 days ALPS REIT Dividend is expected to under-perform the First Trust. In addition to that, ALPS REIT is 1.15 times more volatile than First Trust Exchange Traded. It trades about 0.0 of its total potential returns per unit of risk. First Trust Exchange Traded is currently generating about 0.06 per unit of volatility. If you would invest  3,794  in First Trust Exchange Traded on December 26, 2024 and sell it today you would earn a total of  131.00  from holding First Trust Exchange Traded or generate 3.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

ALPS REIT Dividend  vs.  First Trust Exchange Traded

ALPS REIT Dividend

Risk-Adjusted Performance

Very Weak

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

First Trust Exchange

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ALPS REIT and First Trust

The main advantage of trading using opposite ALPS REIT and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ALPS REIT 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 ALPS REIT Dividend and First Trust Exchange Traded 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.