Correlation Between First Trust and IndexIQ
Can any of the company-specific risk be diversified away by investing in both First Trust and IndexIQ 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 IndexIQ into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Materials and IndexIQ, you can compare the effects of market volatilities on First Trust and IndexIQ 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 IndexIQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IndexIQ.
Diversification Opportunities for First Trust and IndexIQ
-0.5 | Correlation Coefficient |
Very good diversification
The 3 months correlation between First and IndexIQ is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Materials and IndexIQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IndexIQ 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 Materials are associated (or correlated) with IndexIQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IndexIQ has no effect on the direction of First Trust i.e., First Trust and IndexIQ go up and down completely randomly.
Pair Corralation between First Trust and IndexIQ
Considering the 90-day investment horizon First Trust is expected to generate 1.06 times less return on investment than IndexIQ. In addition to that, First Trust is 1.24 times more volatile than IndexIQ. It trades about 0.02 of its total potential returns per unit of risk. IndexIQ is currently generating about 0.02 per unit of volatility. If you would invest 3,297 in IndexIQ on September 1, 2024 and sell it today you would earn a total of 99.00 from holding IndexIQ or generate 3.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 30.91% |
| Values | Daily Returns |
First Trust Materials vs. IndexIQ
Performance |
| Timeline |
| First Trust Materials |
| IndexIQ |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
First Trust and IndexIQ Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and IndexIQ
The main advantage of trading using opposite First Trust and IndexIQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IndexIQ 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 IndexIQ will offset losses from the drop in IndexIQ's long position.| First Trust vs. First Trust IndustrialsProducer | First Trust vs. First Trust Consumer | First Trust vs. First Trust Financials | First Trust vs. First Trust Energy |
| IndexIQ vs. VanEck Natural Resources | IndexIQ vs. IQ Merger Arbitrage | IndexIQ vs. SPDR SP Global | IndexIQ vs. IQ Hedge Multi Strategy |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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