Correlation Between MicroSectors FANG and First Trust
Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG 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 MicroSectors FANG and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MicroSectors FANG Index and First Trust Enhanced, you can compare the effects of market volatilities on MicroSectors FANG 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 MicroSectors FANG with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and First Trust.
Diversification Opportunities for MicroSectors FANG and First Trust
-0.87 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between MicroSectors and First is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and First Trust Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Enhanced and MicroSectors FANG 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 MicroSectors FANG Index 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 Enhanced has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and First Trust go up and down completely randomly.
Pair Corralation between MicroSectors FANG and First Trust
Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the First Trust. In addition to that, MicroSectors FANG is 196.65 times more volatile than First Trust Enhanced. It trades about -0.11 of its total potential returns per unit of risk. First Trust Enhanced is currently generating about 0.67 per unit of volatility. If you would invest 5,977 in First Trust Enhanced on November 1, 2024 and sell it today you would earn a total of 21.00 from holding First Trust Enhanced or generate 0.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
MicroSectors FANG Index vs. First Trust Enhanced
Performance |
| Timeline |
| MicroSectors FANG Index |
| First Trust Enhanced |
MicroSectors FANG and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MicroSectors FANG and First Trust
The main advantage of trading using opposite MicroSectors FANG and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG 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.| MicroSectors FANG vs. MicroSectors FANG Index | MicroSectors FANG vs. Direxion Daily Semiconductor | MicroSectors FANG vs. Direxion Daily Technology | MicroSectors FANG vs. Direxion Daily SP |
| First Trust vs. First Trust Low | First Trust vs. First Trust Senior | First Trust vs. First Trust TCW | First Trust vs. First Trust Tactical |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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