Correlation Between Proshares Russell and First Trust
Can any of the company-specific risk be diversified away by investing in both Proshares Russell 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 Proshares Russell and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Proshares Russell 2000 and First Trust Municipal, you can compare the effects of market volatilities on Proshares Russell 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 Proshares Russell with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Proshares Russell and First Trust.
Diversification Opportunities for Proshares Russell and First Trust
-0.47 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Proshares and First is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Proshares Russell 2000 and First Trust Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Municipal and Proshares Russell 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 Proshares Russell 2000 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 Municipal has no effect on the direction of Proshares Russell i.e., Proshares Russell and First Trust go up and down completely randomly.
Pair Corralation between Proshares Russell and First Trust
Given the investment horizon of 90 days Proshares Russell 2000 is expected to generate 3.45 times more return on investment than First Trust. However, Proshares Russell is 3.45 times more volatile than First Trust Municipal. It trades about 0.18 of its potential returns per unit of risk. First Trust Municipal is currently generating about 0.08 per unit of risk. If you would invest 3,913 in Proshares Russell 2000 on August 26, 2024 and sell it today you would earn a total of 434.00 from holding Proshares Russell 2000 or generate 11.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 11.67% |
| Values | Daily Returns |
Proshares Russell 2000 vs. First Trust Municipal
Performance |
| Timeline |
| Proshares Russell 2000 |
| First Trust Municipal |
Proshares Russell and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Proshares Russell and First Trust
The main advantage of trading using opposite Proshares Russell and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Proshares Russell 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 Proshares Russell 2000 and First Trust Municipal 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. SPDR Nuveen Bloomberg | First Trust vs. VanEck Short Muni | First Trust vs. VanEck Long Muni |
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 Valuation module to check real value of public entities based on technical and fundamental data.
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