Correlation Between First Trust and ARK Innovation
Can any of the company-specific risk be diversified away by investing in both First Trust and ARK Innovation 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 ARK Innovation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Multi and ARK Innovation ETF, you can compare the effects of market volatilities on First Trust and ARK Innovation 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 ARK Innovation. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and ARK Innovation.
Diversification Opportunities for First Trust and ARK Innovation
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and ARK is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Multi and ARK Innovation ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARK Innovation ETF 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 Multi are associated (or correlated) with ARK Innovation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARK Innovation ETF has no effect on the direction of First Trust i.e., First Trust and ARK Innovation go up and down completely randomly.
Pair Corralation between First Trust and ARK Innovation
Considering the 90-day investment horizon First Trust is expected to generate 2.04 times less return on investment than ARK Innovation. But when comparing it to its historical volatility, First Trust Multi is 2.54 times less risky than ARK Innovation. It trades about 0.48 of its potential returns per unit of risk. ARK Innovation ETF is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest 4,589 in ARK Innovation ETF on September 1, 2024 and sell it today you would earn a total of 1,126 from holding ARK Innovation ETF or generate 24.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Multi vs. ARK Innovation ETF
Performance |
| Timeline |
| First Trust Multi |
| ARK Innovation ETF |
First Trust and ARK Innovation Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and ARK Innovation
The main advantage of trading using opposite First Trust and ARK Innovation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, ARK Innovation 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 ARK Innovation will offset losses from the drop in ARK Innovation's long position.The idea behind First Trust Multi and ARK Innovation ETF 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.| ARK Innovation vs. Freedom Day Dividend | ARK Innovation vs. iShares MSCI China | ARK Innovation vs. iShares Dividend and | ARK Innovation vs. SmartETFs Dividend Builder |
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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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