Correlation Between Consumer Discretionary and First Trust

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

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

Diversification Opportunities for Consumer Discretionary and First Trust

0.7

Correlation Coefficient

Consumer Discretionary  First Trust

Poor diversification

The 3 months correlation between Consumer and First is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Discretionary Select and First Trust S Network in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust S and Consumer Discretionary 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 Consumer Discretionary Select 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 S has no effect on the direction of Consumer Discretionary i.e., Consumer Discretionary and First Trust go up and down completely randomly.

Pair Corralation between Consumer Discretionary and First Trust

Considering the 90-day investment horizon Consumer Discretionary Select is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, Consumer Discretionary Select is 1.17 times less risky than First Trust. The etf trades about -0.15 of its potential returns per unit of risk. The First Trust S Network is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  5,861  in First Trust S Network on December 28, 2024 and sell it today you would lose (441.00) from holding First Trust S Network or give up 7.52% of portfolio value over 90 days.

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

Consumer Discretionary Select  vs.  First Trust S Network

Consumer Discretionary

Risk-Adjusted Performance

Very Weak

Over the last 90 days Consumer Discretionary Select has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's essential indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

First Trust S

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust S Network has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain 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 Consumer Discretionary and First Trust

The main advantage of trading using opposite Consumer Discretionary and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumer Discretionary 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 Consumer Discretionary Select and First Trust S Network 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.