Correlation Between SPDR Kensho and First Trust
Can any of the company-specific risk be diversified away by investing in both SPDR Kensho 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 Kensho 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 Kensho New and First Trust Small, you can compare the effects of market volatilities on SPDR Kensho 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 Kensho with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Kensho and First Trust.
Diversification Opportunities for SPDR Kensho and First Trust
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between SPDR and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Kensho New and First Trust Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Small and SPDR Kensho 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 Kensho New 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 Small has no effect on the direction of SPDR Kensho i.e., SPDR Kensho and First Trust go up and down completely randomly.
Pair Corralation between SPDR Kensho and First Trust
Given the investment horizon of 90 days SPDR Kensho is expected to generate 1.47 times less return on investment than First Trust. But when comparing it to its historical volatility, SPDR Kensho New is 1.15 times less risky than First Trust. It trades about 0.21 of its potential returns per unit of risk. First Trust Small is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 7,449 in First Trust Small on August 24, 2024 and sell it today you would earn a total of 742.00 from holding First Trust Small or generate 9.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR Kensho New vs. First Trust Small
Performance |
| Timeline |
| SPDR Kensho New |
| First Trust Small |
SPDR Kensho and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR Kensho and First Trust
The main advantage of trading using opposite SPDR Kensho and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Kensho 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 Kensho vs. First Trust Small | SPDR Kensho vs. First Trust Mid | SPDR Kensho vs. First Trust Small | SPDR Kensho vs. First Trust Multi |
| First Trust vs. First Trust Mid | First Trust vs. First Trust Small | First Trust vs. First Trust Small | First Trust vs. First Trust Mid |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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