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 Utilities, 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

-0.06

Correlation Coefficient

Global X  First Trust

Good diversification

The 3 months correlation between Global and First is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Global X Renewable and First Trust Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Utilities 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 Utilities 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 1.07 times more volatile than First Trust Utilities. It trades about -0.04 of its total potential returns per unit of risk. First Trust Utilities is currently generating about 0.1 per unit of volatility. If you would invest  3,793  in First Trust Utilities on December 28, 2024 and sell it today you would earn a total of  234.00  from holding First Trust Utilities or generate 6.17% 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 Utilities

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 Utilities

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Utilities are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 Utilities 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.