Correlation Between First Trust and ETC 6
Can any of the company-specific risk be diversified away by investing in both First Trust and ETC 6 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 ETC 6 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust BuyWrite and ETC 6 Meridian, you can compare the effects of market volatilities on First Trust and ETC 6 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 ETC 6. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and ETC 6.
Diversification Opportunities for First Trust and ETC 6
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and ETC is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding First Trust BuyWrite and ETC 6 Meridian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETC 6 Meridian 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 BuyWrite are associated (or correlated) with ETC 6. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETC 6 Meridian has no effect on the direction of First Trust i.e., First Trust and ETC 6 go up and down completely randomly.
Pair Corralation between First Trust and ETC 6
Given the investment horizon of 90 days First Trust BuyWrite is expected to generate 1.8 times more return on investment than ETC 6. However, First Trust is 1.8 times more volatile than ETC 6 Meridian. It trades about 0.19 of its potential returns per unit of risk. ETC 6 Meridian is currently generating about 0.19 per unit of risk. If you would invest 2,314 in First Trust BuyWrite on August 29, 2024 and sell it today you would earn a total of 64.00 from holding First Trust BuyWrite or generate 2.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust BuyWrite vs. ETC 6 Meridian
Performance |
| Timeline |
| First Trust BuyWrite |
| ETC 6 Meridian |
First Trust and ETC 6 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and ETC 6
The main advantage of trading using opposite First Trust and ETC 6 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, ETC 6 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 ETC 6 will offset losses from the drop in ETC 6's long position.| First Trust vs. First Trust Emerging | First Trust vs. First Trust Managed | First Trust vs. First Trust Senior | First Trust vs. First Trust Income |
| ETC 6 vs. Global X SP | ETC 6 vs. Amplify CWP Enhanced | ETC 6 vs. Global X Russell | ETC 6 vs. JPMorgan Nasdaq Equity |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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