Correlation Between SPACE and First Trust
Can any of the company-specific risk be diversified away by investing in both SPACE 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 SPACE and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPACE and First Trust Exchange, you can compare the effects of market volatilities on SPACE 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 SPACE with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPACE and First Trust.
Diversification Opportunities for SPACE and First Trust
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between SPACE and First is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding SPACE and First Trust Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Exchange and SPACE 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 SPACE 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 Exchange has no effect on the direction of SPACE i.e., SPACE and First Trust go up and down completely randomly.
Pair Corralation between SPACE and First Trust
Assuming the 90 days horizon SPACE is expected to generate 32.46 times more return on investment than First Trust. However, SPACE is 32.46 times more volatile than First Trust Exchange. It trades about 0.32 of its potential returns per unit of risk. First Trust Exchange is currently generating about 0.49 per unit of risk. If you would invest 40.00 in SPACE on September 1, 2024 and sell it today you would earn a total of 16.00 from holding SPACE or generate 40.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPACE vs. First Trust Exchange
Performance |
| Timeline |
| SPACE |
| First Trust Exchange |
SPACE and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPACE and First Trust
The main advantage of trading using opposite SPACE and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPACE 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.The idea behind SPACE and First Trust Exchange pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| First Trust vs. Innovator ETFs Trust | First Trust vs. First Trust Cboe | First Trust vs. Innovator SP 500 | First Trust vs. Innovator Equity Power |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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