Correlation Between VIIX and First Trust

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

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

Diversification Opportunities for VIIX and First Trust

-0.76

Correlation Coefficient

VIIX  First Trust

Pay attention - limited upside

The 3 months correlation between VIIX and First is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding VIIX and First Trust Cboe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Cboe and VIIX 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 VIIX 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 Cboe has no effect on the direction of VIIX i.e., VIIX and First Trust go up and down completely randomly.

Pair Corralation between VIIX and First Trust

Given the investment horizon of 90 days VIIX is expected to generate 370.19 times more return on investment than First Trust. However, VIIX is 370.19 times more volatile than First Trust Cboe. It trades about 0.16 of its potential returns per unit of risk. First Trust Cboe is currently generating about 0.13 per unit of risk. If you would invest  416.00  in VIIX on October 24, 2024 and sell it today you would earn a total of  6,433  from holding VIIX or generate 1546.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	8.76%
Values	Daily Returns

VIIX  vs.  First Trust Cboe

VIIX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VIIX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, VIIX is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Trust Cboe

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Cboe are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with VIIX and First Trust

The main advantage of trading using opposite VIIX and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VIIX 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 VIIX and First Trust Cboe 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.