Correlation Between First Trust and ALPS
Can any of the company-specific risk be diversified away by investing in both First Trust and ALPS 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 ALPS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Value and ALPS, you can compare the effects of market volatilities on First Trust and ALPS 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 ALPS. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and ALPS.
Diversification Opportunities for First Trust and ALPS
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and ALPS is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Value and ALPS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPS 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 Value are associated (or correlated) with ALPS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALPS has no effect on the direction of First Trust i.e., First Trust and ALPS go up and down completely randomly.
Pair Corralation between First Trust and ALPS
Considering the 90-day investment horizon First Trust is expected to generate 2.08 times less return on investment than ALPS. But when comparing it to its historical volatility, First Trust Value is 1.03 times less risky than ALPS. It trades about 0.08 of its potential returns per unit of risk. ALPS is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 2,363 in ALPS on August 31, 2024 and sell it today you would earn a total of 81.00 from holding ALPS or generate 3.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 8.29% |
| Values | Daily Returns |
First Trust Value vs. ALPS
Performance |
| Timeline |
| First Trust Value |
| ALPS |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
First Trust and ALPS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and ALPS
The main advantage of trading using opposite First Trust and ALPS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, ALPS 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 ALPS will offset losses from the drop in ALPS's long position.| First Trust vs. First Trust Morningstar | First Trust vs. First Trust Rising | First Trust vs. First Trust Capital | First Trust vs. WisdomTree LargeCap Dividend |
| ALPS vs. iShares Core SP | ALPS vs. iShares Core MSCI | ALPS vs. iShares Broad USD | ALPS vs. iShares Core SP |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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