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 Consumer, 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

0.97

Correlation Coefficient

Consumer Discretionary  First Trust

Almost no diversification

The 3 months correlation between Consumer and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Discretionary Select and First Trust Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Consumer 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 Consumer 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 generate 1.05 times more return on investment than First Trust. However, Consumer Discretionary is 1.05 times more volatile than First Trust Consumer. It trades about -0.12 of its potential returns per unit of risk. First Trust Consumer is currently generating about -0.14 per unit of risk. If you would invest  22,543  in Consumer Discretionary Select on December 28, 2024 and sell it today you would lose (2,220) from holding Consumer Discretionary Select or give up 9.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Consumer Discretionary Select  vs.  First Trust Consumer

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 latest weak performance, the Etf's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

First Trust Consumer

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Consumer has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

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 Consumer 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.