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 Nasdaq, 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
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between MicroSectors and First is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and First Trust Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Nasdaq 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 Nasdaq 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 generate 3.26 times more return on investment than First Trust. However, MicroSectors FANG is 3.26 times more volatile than First Trust Nasdaq. It trades about 0.22 of its potential returns per unit of risk. First Trust Nasdaq is currently generating about 0.1 per unit of risk. If you would invest 38,831 in MicroSectors FANG Index on September 12, 2024 and sell it today you would earn a total of 23,935 from holding MicroSectors FANG Index or generate 61.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
MicroSectors FANG Index vs. First Trust Nasdaq
Performance |
| Timeline |
| MicroSectors FANG Index |
| First Trust Nasdaq |
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. Direxion Daily Semiconductor | MicroSectors FANG vs. MicroSectors Solactive FANG | MicroSectors FANG vs. MicroSectors FANG Index | MicroSectors FANG vs. Direxion Daily Technology |
| First Trust vs. First Trust Nasdaq | First Trust vs. Global X Aging | First Trust vs. Invesco Nasdaq Biotechnology | First Trust vs. First Trust Indxx |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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