Correlation Between First Trust and SPDR Global
Can any of the company-specific risk be diversified away by investing in both First Trust and SPDR Global 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 SPDR Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Capital and SPDR Global Dow, you can compare the effects of market volatilities on First Trust and SPDR Global 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 SPDR Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and SPDR Global.
Diversification Opportunities for First Trust and SPDR Global
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and SPDR is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Capital and SPDR Global Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Global Dow 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 Capital are associated (or correlated) with SPDR Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Global Dow has no effect on the direction of First Trust i.e., First Trust and SPDR Global go up and down completely randomly.
Pair Corralation between First Trust and SPDR Global
Considering the 90-day investment horizon First Trust is expected to generate 1.83 times less return on investment than SPDR Global. But when comparing it to its historical volatility, First Trust Capital is 1.01 times less risky than SPDR Global. It trades about 0.05 of its potential returns per unit of risk. SPDR Global Dow is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 9,717 in SPDR Global Dow on August 30, 2024 and sell it today you would earn a total of 3,974 from holding SPDR Global Dow or generate 40.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Capital vs. SPDR Global Dow
Performance |
| Timeline |
| First Trust Capital |
| SPDR Global Dow |
First Trust and SPDR Global Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and SPDR Global
The main advantage of trading using opposite First Trust and SPDR Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, SPDR Global 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 SPDR Global will offset losses from the drop in SPDR Global's long position.| First Trust vs. First Trust Large | First Trust vs. First Trust Dow | First Trust vs. First Trust Multi | First Trust vs. First Trust Multi |
| SPDR Global vs. iShares Global 100 | SPDR Global vs. iShares MSCI Belgium | SPDR Global vs. iShares MSCI Netherlands | SPDR Global vs. iShares Dow Jones |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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