Correlation Between SPDR SSgA and First Trust

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

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

Diversification Opportunities for SPDR SSgA and First Trust

-0.4

Correlation Coefficient

SPDR SSgA  First Trust

Very good diversification

The 3 months correlation between SPDR and First is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SSgA Multi Asset and First Trust BuyWrite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust BuyWrite and SPDR SSgA 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 SPDR SSgA Multi Asset 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 BuyWrite has no effect on the direction of SPDR SSgA i.e., SPDR SSgA and First Trust go up and down completely randomly.

Pair Corralation between SPDR SSgA and First Trust

Considering the 90-day investment horizon SPDR SSgA Multi Asset is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, SPDR SSgA Multi Asset is 1.08 times less risky than First Trust. The etf trades about -0.4 of its potential returns per unit of risk. The First Trust BuyWrite is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,356  in First Trust BuyWrite on September 24, 2024 and sell it today you would earn a total of  4.00  from holding First Trust BuyWrite or generate 0.17% return on investment over 90 days.

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

SPDR SSgA Multi Asset  vs.  First Trust BuyWrite

SPDR SSgA Multi

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SSgA Multi Asset has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, SPDR SSgA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

First Trust BuyWrite

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust BuyWrite are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, First Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with SPDR SSgA and First Trust

The main advantage of trading using opposite SPDR SSgA and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SSgA 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 SPDR SSgA Multi Asset and First Trust BuyWrite 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 Stocks Directory module to find actively traded stocks across global markets.