Correlation Between SEI Select and First Trust

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

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

Diversification Opportunities for SEI Select and First Trust

0.11

Correlation Coefficient

SEI Select  First Trust

Average diversification

The 3 months correlation between SEI and First is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding SEI Select Emerging and First Trust International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust International and SEI Select 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 SEI Select Emerging 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 International has no effect on the direction of SEI Select i.e., SEI Select and First Trust go up and down completely randomly.

Pair Corralation between SEI Select and First Trust

Given the investment horizon of 90 days SEI Select Emerging is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, SEI Select Emerging is 1.42 times less risky than First Trust. The etf trades about -0.09 of its potential returns per unit of risk. The First Trust International is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  4,968  in First Trust International on October 9, 2024 and sell it today you would lose (98.00) from holding First Trust International or give up 1.97% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.5%
Values	Daily Returns

SEI Select Emerging  vs.  First Trust International

SEI Select Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SEI Select Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, SEI Select is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

First Trust International

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust International are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, First Trust is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with SEI Select and First Trust

The main advantage of trading using opposite SEI Select and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SEI Select 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 SEI Select Emerging and First Trust International 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.