Correlation Between Sprott Energy and First Trust

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

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

Diversification Opportunities for Sprott Energy and First Trust

0.95

Correlation Coefficient

Sprott Energy  First Trust

Almost no diversification

The 3 months correlation between Sprott and First is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Sprott Energy Transition and First Trust Indxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Indxx and Sprott Energy 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 Sprott Energy Transition 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 Indxx has no effect on the direction of Sprott Energy i.e., Sprott Energy and First Trust go up and down completely randomly.

Pair Corralation between Sprott Energy and First Trust

Given the investment horizon of 90 days Sprott Energy Transition is expected to under-perform the First Trust. In addition to that, Sprott Energy is 1.6 times more volatile than First Trust Indxx. It trades about -0.13 of its total potential returns per unit of risk. First Trust Indxx is currently generating about -0.07 per unit of volatility. If you would invest  1,298  in First Trust Indxx on October 26, 2024 and sell it today you would lose (37.00) from holding First Trust Indxx or give up 2.85% of portfolio value over 90 days.

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

Sprott Energy Transition  vs.  First Trust Indxx

Sprott Energy Transition

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sprott Energy Transition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

First Trust Indxx

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Indxx has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Sprott Energy and First Trust

The main advantage of trading using opposite Sprott Energy and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sprott Energy 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 Sprott Energy Transition and First Trust Indxx 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..