Correlation Between SPDR SSgA and First Trust
Can any of the company-specific risk be diversified away by investing in both SPDR SSgA and First Trust 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 SPDR SSgA and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SSgA Global and First Trust BuyWrite, you can compare the effects of market volatilities on SPDR SSgA and First Trust 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 SPDR SSgA with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SSgA and First Trust.
Diversification Opportunities for SPDR SSgA and First Trust
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between SPDR and First is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SSgA Global and First Trust BuyWrite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust BuyWrite and SPDR SSgA 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 SPDR SSgA Global are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust BuyWrite has no effect on the direction of SPDR SSgA i.e., SPDR SSgA and First Trust go up and down completely randomly.
Pair Corralation between SPDR SSgA and First Trust
Considering the 90-day investment horizon SPDR SSgA is expected to generate 2.36 times less return on investment than First Trust. But when comparing it to its historical volatility, SPDR SSgA Global is 1.62 times less risky than First Trust. It trades about 0.12 of its potential returns per unit of risk. First Trust BuyWrite is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 2,318 in First Trust BuyWrite on August 31, 2024 and sell it today you would earn a total of 60.00 from holding First Trust BuyWrite or generate 2.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR SSgA Global vs. First Trust BuyWrite
Performance |
| Timeline |
| SPDR SSgA Global |
| First Trust BuyWrite |
SPDR SSgA and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SSgA and First Trust
The main advantage of trading using opposite SPDR SSgA and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SSgA position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| SPDR SSgA vs. SPDR SSgA Income | SPDR SSgA vs. SPDR SSgA Multi Asset | SPDR SSgA vs. SPDR Bloomberg International | SPDR SSgA vs. SPDR Bloomberg Emerging |
| First Trust vs. First Trust Emerging | First Trust vs. First Trust Managed | First Trust vs. First Trust Senior | First Trust vs. First Trust Income |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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