Correlation Between First Trust and SPDR Portfolio

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

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

Diversification Opportunities for First Trust and SPDR Portfolio

0.94

Correlation Coefficient

First Trust  SPDR Portfolio

Almost no diversification

The 3 months correlation between First and SPDR is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding First Trust TCW and SPDR Portfolio Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio Corporate and First Trust 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 First Trust TCW are associated (or correlated) with SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio Corporate has no effect on the direction of First Trust i.e., First Trust and SPDR Portfolio go up and down completely randomly.

Pair Corralation between First Trust and SPDR Portfolio

Given the investment horizon of 90 days First Trust TCW is expected to generate 0.39 times more return on investment than SPDR Portfolio. However, First Trust TCW is 2.56 times less risky than SPDR Portfolio. It trades about 0.02 of its potential returns per unit of risk. SPDR Portfolio Corporate is currently generating about -0.05 per unit of risk. If you would invest  2,463  in First Trust TCW on September 21, 2024 and sell it today you would earn a total of  3.00  from holding First Trust TCW or generate 0.12% return on investment over 90 days.

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

First Trust TCW  vs.  SPDR Portfolio Corporate

First Trust TCW

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust TCW has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

SPDR Portfolio Corporate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Portfolio Corporate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, SPDR Portfolio is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Trust and SPDR Portfolio

The main advantage of trading using opposite First Trust and SPDR Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, SPDR Portfolio 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 SPDR Portfolio will offset losses from the drop in SPDR Portfolio's long position.

The idea behind First Trust TCW and SPDR Portfolio Corporate 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.