Correlation Between First Trust and SPDR ICE
Can any of the company-specific risk be diversified away by investing in both First Trust and SPDR ICE 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 ICE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Institutional and SPDR ICE Preferred, you can compare the effects of market volatilities on First Trust and SPDR ICE 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 ICE. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and SPDR ICE.
Diversification Opportunities for First Trust and SPDR ICE
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and SPDR is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Institutional and SPDR ICE Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR ICE Preferred 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 Institutional are associated (or correlated) with SPDR ICE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR ICE Preferred has no effect on the direction of First Trust i.e., First Trust and SPDR ICE go up and down completely randomly.
Pair Corralation between First Trust and SPDR ICE
Given the investment horizon of 90 days First Trust is expected to generate 1.06 times less return on investment than SPDR ICE. But when comparing it to its historical volatility, First Trust Institutional is 2.61 times less risky than SPDR ICE. It trades about 0.21 of its potential returns per unit of risk. SPDR ICE Preferred is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 3,298 in SPDR ICE Preferred on September 1, 2024 and sell it today you would earn a total of 173.00 from holding SPDR ICE Preferred or generate 5.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Institutional vs. SPDR ICE Preferred
Performance |
| Timeline |
| First Trust Institutional |
| SPDR ICE Preferred |
First Trust and SPDR ICE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and SPDR ICE
The main advantage of trading using opposite First Trust and SPDR ICE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, SPDR ICE 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 ICE will offset losses from the drop in SPDR ICE's long position.| First Trust vs. VanEck Preferred Securities | First Trust vs. Invesco Preferred ETF | First Trust vs. Global X SuperIncome | First Trust vs. Invesco Variable Rate |
| SPDR ICE vs. VanEck Preferred Securities | SPDR ICE vs. Invesco Preferred ETF | SPDR ICE vs. Invesco Financial Preferred | SPDR ICE vs. Global X SuperIncome |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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