Correlation Between First Trust and Consumer Discretionary
Can any of the company-specific risk be diversified away by investing in both First Trust and Consumer Discretionary 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 Consumer Discretionary into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Consumer and Consumer Discretionary Select, you can compare the effects of market volatilities on First Trust and Consumer Discretionary 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 Consumer Discretionary. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Consumer Discretionary.
Diversification Opportunities for First Trust and Consumer Discretionary
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between First and Consumer is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Consumer and Consumer Discretionary Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Discretionary 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 Consumer are associated (or correlated) with Consumer Discretionary. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Discretionary has no effect on the direction of First Trust i.e., First Trust and Consumer Discretionary go up and down completely randomly.
Pair Corralation between First Trust and Consumer Discretionary
Considering the 90-day investment horizon First Trust Consumer is expected to generate 1.04 times more return on investment than Consumer Discretionary. However, First Trust is 1.04 times more volatile than Consumer Discretionary Select. It trades about 0.11 of its potential returns per unit of risk. Consumer Discretionary Select is currently generating about -0.05 per unit of risk. If you would invest 6,573 in First Trust Consumer on November 18, 2024 and sell it today you would earn a total of 127.00 from holding First Trust Consumer or generate 1.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Consumer vs. Consumer Discretionary Select
Performance |
| Timeline |
| First Trust Consumer |
| Consumer Discretionary |
First Trust and Consumer Discretionary Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Consumer Discretionary
The main advantage of trading using opposite First Trust and Consumer Discretionary positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Consumer Discretionary 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 Consumer Discretionary will offset losses from the drop in Consumer Discretionary's long position.| First Trust vs. First Trust Consumer | First Trust vs. First Trust IndustrialsProducer | First Trust vs. First Trust Health | First Trust vs. First Trust Materials |
| Consumer Discretionary vs. Consumer Staples Select | Consumer Discretionary vs. Industrial Select Sector | Consumer Discretionary vs. Materials Select Sector | Consumer Discretionary vs. Health Care Select |
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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