Correlation Between First Trust and Sprott Nickel
Can any of the company-specific risk be diversified away by investing in both First Trust and Sprott Nickel 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 Sprott Nickel 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 Sprott Nickel Miners, you can compare the effects of market volatilities on First Trust and Sprott Nickel 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 Sprott Nickel. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Sprott Nickel.
Diversification Opportunities for First Trust and Sprott Nickel
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and Sprott is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Materials and Sprott Nickel Miners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Nickel Miners 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 Sprott Nickel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Nickel Miners has no effect on the direction of First Trust i.e., First Trust and Sprott Nickel go up and down completely randomly.
Pair Corralation between First Trust and Sprott Nickel
Considering the 90-day investment horizon First Trust Materials is expected to generate 0.92 times more return on investment than Sprott Nickel. However, First Trust Materials is 1.09 times less risky than Sprott Nickel. It trades about -0.05 of its potential returns per unit of risk. Sprott Nickel Miners is currently generating about -0.25 per unit of risk. If you would invest 6,641 in First Trust Materials on August 27, 2024 and sell it today you would lose (105.00) from holding First Trust Materials or give up 1.58% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Materials vs. Sprott Nickel Miners
Performance |
| Timeline |
| First Trust Materials |
| Sprott Nickel Miners |
First Trust and Sprott Nickel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and Sprott Nickel
The main advantage of trading using opposite First Trust and Sprott Nickel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Sprott Nickel 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 Sprott Nickel will offset losses from the drop in Sprott Nickel'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 |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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