Correlation Between Global X and First Trust

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

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

Diversification Opportunities for Global X and First Trust

-0.31

Correlation Coefficient

Global X  First Trust

Very good diversification

The 3 months correlation between Global and First is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Global X Renewable and First Trust EIP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust EIP and Global X 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 Global X Renewable 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 EIP has no effect on the direction of Global X i.e., Global X and First Trust go up and down completely randomly.

Pair Corralation between Global X and First Trust

Given the investment horizon of 90 days Global X Renewable is expected to under-perform the First Trust. In addition to that, Global X is 1.17 times more volatile than First Trust EIP. It trades about -0.04 of its total potential returns per unit of risk. First Trust EIP is currently generating about 0.08 per unit of volatility. If you would invest  2,890  in First Trust EIP on December 28, 2024 and sell it today you would earn a total of  128.00  from holding First Trust EIP or generate 4.43% return on investment over 90 days.

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

Global X Renewable  vs.  First Trust EIP

Global X Renewable

Risk-Adjusted Performance

Very Weak

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

First Trust EIP

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust EIP are ranked lower than 6 (%) 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.

Pair Trading with Global X and First Trust

The main advantage of trading using opposite Global X and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global X 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 Global X Renewable and First Trust EIP 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.