Correlation Between First Trust and ProShares VIX
Can any of the company-specific risk be diversified away by investing in both First Trust and ProShares VIX 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 First Trust and ProShares VIX into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Alternative and ProShares VIX Short Term, you can compare the effects of market volatilities on First Trust and ProShares VIX 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 First Trust with a short position of ProShares VIX. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and ProShares VIX.
Diversification Opportunities for First Trust and ProShares VIX
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between First and ProShares is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Alternative and ProShares VIX Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares VIX Short and First Trust 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 First Trust Alternative are associated (or correlated) with ProShares VIX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares VIX Short has no effect on the direction of First Trust i.e., First Trust and ProShares VIX go up and down completely randomly.
Pair Corralation between First Trust and ProShares VIX
Given the investment horizon of 90 days First Trust Alternative is expected to generate 0.18 times more return on investment than ProShares VIX. However, First Trust Alternative is 5.54 times less risky than ProShares VIX. It trades about 0.06 of its potential returns per unit of risk. ProShares VIX Short Term is currently generating about -0.19 per unit of risk. If you would invest 2,779 in First Trust Alternative on August 30, 2024 and sell it today you would earn a total of 24.00 from holding First Trust Alternative or generate 0.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Alternative vs. ProShares VIX Short Term
Performance |
| Timeline |
| First Trust Alternative |
| ProShares VIX Short |
First Trust and ProShares VIX Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and ProShares VIX
The main advantage of trading using opposite First Trust and ProShares VIX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, ProShares VIX 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 ProShares VIX will offset losses from the drop in ProShares VIX's long position.| First Trust vs. First Trust Emerging | First Trust vs. First Trust Income | First Trust vs. First Trust SSI | First Trust vs. First Trust Indxx |
| ProShares VIX vs. ProShares VIX Mid Term | ProShares VIX vs. ProShares Short VIX | ProShares VIX vs. ProShares Ultra VIX | ProShares VIX vs. iPath Series B |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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