Correlation Between Select Sector and First Trust

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

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

Diversification Opportunities for Select Sector and First Trust

-0.6

Correlation Coefficient

Select Sector  First Trust

Excellent diversification

The 3 months correlation between Select and First is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector and First Trust FTSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust FTSE and Select Sector 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 The Select Sector 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 FTSE has no effect on the direction of Select Sector i.e., Select Sector and First Trust go up and down completely randomly.

Pair Corralation between Select Sector and First Trust

If you would invest  479,500  in The Select Sector on October 24, 2024 and sell it today you would earn a total of  8,000  from holding The Select Sector or generate 1.67% return on investment over 90 days.

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

The Select Sector  vs.  First Trust FTSE

Select Sector

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Select Sector are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, Select Sector may actually be approaching a critical reversion point that can send shares even higher in February 2025.

First Trust FTSE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust FTSE 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 strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with Select Sector and First Trust

The main advantage of trading using opposite Select Sector and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Sector 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 The Select Sector and First Trust FTSE 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.