Correlation Between First Trust and ALPS Equal
Can any of the company-specific risk be diversified away by investing in both First Trust and ALPS Equal 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 ALPS Equal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Large and ALPS Equal Sector, you can compare the effects of market volatilities on First Trust and ALPS Equal 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 ALPS Equal. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and ALPS Equal.
Diversification Opportunities for First Trust and ALPS Equal
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and ALPS is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Large and ALPS Equal Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPS Equal Sector 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 Large are associated (or correlated) with ALPS Equal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALPS Equal Sector has no effect on the direction of First Trust i.e., First Trust and ALPS Equal go up and down completely randomly.
Pair Corralation between First Trust and ALPS Equal
Considering the 90-day investment horizon First Trust Large is expected to generate 1.16 times more return on investment than ALPS Equal. However, First Trust is 1.16 times more volatile than ALPS Equal Sector. It trades about 0.08 of its potential returns per unit of risk. ALPS Equal Sector is currently generating about 0.09 per unit of risk. If you would invest 8,116 in First Trust Large on September 3, 2024 and sell it today you would earn a total of 3,172 from holding First Trust Large or generate 39.08% 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 Large vs. ALPS Equal Sector
Performance |
| Timeline |
| First Trust Large |
| ALPS Equal Sector |
First Trust and ALPS Equal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and ALPS Equal
The main advantage of trading using opposite First Trust and ALPS Equal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, ALPS Equal 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 ALPS Equal will offset losses from the drop in ALPS Equal's long position.| First Trust vs. First Trust Large | First Trust vs. First Trust Small | First Trust vs. First Trust Mid | First Trust vs. First Trust Large |
| ALPS Equal vs. WisdomTree Earnings 500 | ALPS Equal vs. Invesco SP 100 | ALPS Equal vs. iShares MSCI USA | ALPS Equal vs. First Trust Large |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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