Correlation Between First Trust and Dow Jones
Can any of the company-specific risk be diversified away by investing in both First Trust and Dow Jones 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 Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust LongShort and Dow Jones Industrial, you can compare the effects of market volatilities on First Trust and Dow Jones 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 Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Dow Jones.
Diversification Opportunities for First Trust and Dow Jones
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and Dow is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding First Trust LongShort and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial 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 LongShort are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of First Trust i.e., First Trust and Dow Jones go up and down completely randomly.
Pair Corralation between First Trust and Dow Jones
Given the investment horizon of 90 days First Trust LongShort is expected to generate 0.83 times more return on investment than Dow Jones. However, First Trust LongShort is 1.21 times less risky than Dow Jones. It trades about 0.1 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.08 per unit of risk. If you would invest 4,856 in First Trust LongShort on August 26, 2024 and sell it today you would earn a total of 1,707 from holding First Trust LongShort or generate 35.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust LongShort vs. Dow Jones Industrial
Performance |
| Timeline |
First Trust and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
First Trust LongShort
Pair trading matchups for First Trust
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with First Trust and Dow Jones
The main advantage of trading using opposite First Trust and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| First Trust vs. First Trust Managed | First Trust vs. IQ Hedge Multi Strategy | First Trust vs. First Trust BuyWrite | First Trust vs. SPDR SSgA Global |
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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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