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 Exchange Traded, 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

0.36

Correlation Coefficient

UBS ETRACS  First Trust

Weak diversification

The 3 months correlation between UBS and First is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding UBS ETRACS and First Trust Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Exchange 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 Exchange 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 14.23 times more return on investment than First Trust. However, UBS ETRACS is 14.23 times more volatile than First Trust Exchange Traded. It trades about 0.04 of its potential returns per unit of risk. First Trust Exchange Traded is currently generating about -0.04 per unit of risk. If you would invest  1,244  in UBS ETRACS on December 17, 2024 and sell it today you would lose (233.00) from holding UBS ETRACS or give up 18.73% of portfolio value over 90 days.

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

UBS ETRACS   vs.  First Trust Exchange Traded

UBS ETRACS

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in UBS ETRACS are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, UBS ETRACS unveiled solid returns over the last few months and may actually be approaching a breakup point.

First Trust Exchange

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Exchange Traded has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated 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 Exchange Traded 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.