Correlation Between First Trust and Global X

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Can any of the company-specific risk be diversified away by investing in both First Trust and Global X 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 Global X into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Indxx and Global X E commerce, you can compare the effects of market volatilities on First Trust and Global X 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 Global X. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Global X.

Diversification Opportunities for First Trust and Global X

0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between First and Global is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Indxx and Global X E commerce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X E 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 Indxx are associated (or correlated) with Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X E has no effect on the direction of First Trust i.e., First Trust and Global X go up and down completely randomly.

Pair Corralation between First Trust and Global X

Given the investment horizon of 90 days First Trust Indxx is expected to under-perform the Global X. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Indxx is 1.6 times less risky than Global X. The etf trades about -0.03 of its potential returns per unit of risk. The Global X E commerce is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,717  in Global X E commerce on August 26, 2024 and sell it today you would earn a total of  1,094  from holding Global X E commerce or generate 63.72% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

First Trust Indxx  vs.  Global X E commerce

 Performance 
       Timeline  
First Trust Indxx 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days First Trust Indxx has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, First Trust is not utilizing all of its potentials. The new stock price disturbance, may contribute to mid-run losses for the stockholders.
Global X E 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Global X E commerce are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent forward indicators, Global X showed solid returns over the last few months and may actually be approaching a breakup point.

First Trust and Global X Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with First Trust and Global X

The main advantage of trading using opposite First Trust and Global X positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Global X 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 Global X will offset losses from the drop in Global X's long position.
The idea behind First Trust Indxx and Global X E commerce pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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