Correlation Between UBS ETRACS and First Trust

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

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

Diversification Opportunities for UBS ETRACS and First Trust

-0.37

Correlation Coefficient

UBS ETRACS  First Trust

Very good diversification

The 3 months correlation between UBS and First is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding UBS ETRACS and First Trust IndustrialsProduce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Industri and UBS ETRACS 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 UBS ETRACS 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 Industri has no effect on the direction of UBS ETRACS i.e., UBS ETRACS and First Trust go up and down completely randomly.

Pair Corralation between UBS ETRACS and First Trust

Given the investment horizon of 90 days UBS ETRACS is expected to generate 1.93 times less return on investment than First Trust. In addition to that, UBS ETRACS is 3.45 times more volatile than First Trust IndustrialsProducer. It trades about 0.01 of its total potential returns per unit of risk. First Trust IndustrialsProducer is currently generating about 0.09 per unit of volatility. If you would invest  6,042  in First Trust IndustrialsProducer on September 28, 2024 and sell it today you would earn a total of  1,565  from holding First Trust IndustrialsProducer or generate 25.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

UBS ETRACS   vs.  First Trust IndustrialsProduce

UBS ETRACS

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in UBS ETRACS are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting forward indicators, UBS ETRACS exhibited solid returns over the last few months and may actually be approaching a breakup point.

First Trust Industri

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust IndustrialsProducer are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, First Trust is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with UBS ETRACS and First Trust

The main advantage of trading using opposite UBS ETRACS and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UBS ETRACS 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 UBS ETRACS and First Trust IndustrialsProducer 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.