Correlation Between Alerian Energy and First Trust
Can any of the company-specific risk be diversified away by investing in both Alerian Energy 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 Alerian Energy and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alerian Energy Infrastructure and First Trust Energy, you can compare the effects of market volatilities on Alerian Energy 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 Alerian Energy with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alerian Energy and First Trust.
Diversification Opportunities for Alerian Energy and First Trust
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Alerian and First is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Alerian Energy Infrastructure and First Trust Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Energy and Alerian Energy 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 Alerian Energy Infrastructure 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 Energy has no effect on the direction of Alerian Energy i.e., Alerian Energy and First Trust go up and down completely randomly.
Pair Corralation between Alerian Energy and First Trust
Given the investment horizon of 90 days Alerian Energy Infrastructure is expected to generate 0.64 times more return on investment than First Trust. However, Alerian Energy Infrastructure is 1.57 times less risky than First Trust. It trades about 0.22 of its potential returns per unit of risk. First Trust Energy is currently generating about 0.05 per unit of risk. If you would invest 2,148 in Alerian Energy Infrastructure on September 2, 2024 and sell it today you would earn a total of 1,163 from holding Alerian Energy Infrastructure or generate 54.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alerian Energy Infrastructure vs. First Trust Energy
Performance |
| Timeline |
| Alerian Energy Infra |
| First Trust Energy |
Alerian Energy and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alerian Energy and First Trust
The main advantage of trading using opposite Alerian Energy and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alerian Energy 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.| Alerian Energy vs. Global X MLP | Alerian Energy vs. Tortoise North American | Alerian Energy vs. First Trust North | Alerian Energy vs. Global X MLP |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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