Correlation Between First Trust and WisdomTree
Can any of the company-specific risk be diversified away by investing in both First Trust and WisdomTree 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 WisdomTree into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Low and WisdomTree 1 3 Year, you can compare the effects of market volatilities on First Trust and WisdomTree 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 WisdomTree. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and WisdomTree.
Diversification Opportunities for First Trust and WisdomTree
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and WisdomTree is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Low and WisdomTree 1 3 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree 1 3 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 Low are associated (or correlated) with WisdomTree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree 1 3 has no effect on the direction of First Trust i.e., First Trust and WisdomTree go up and down completely randomly.
Pair Corralation between First Trust and WisdomTree
Given the investment horizon of 90 days First Trust Low is expected to generate 2.27 times more return on investment than WisdomTree. However, First Trust is 2.27 times more volatile than WisdomTree 1 3 Year. It trades about 0.16 of its potential returns per unit of risk. WisdomTree 1 3 Year is currently generating about 0.15 per unit of risk. If you would invest 4,863 in First Trust Low on September 1, 2024 and sell it today you would earn a total of 34.00 from holding First Trust Low or generate 0.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
First Trust Low vs. WisdomTree 1 3 Year
Performance |
| Timeline |
| First Trust Low |
| WisdomTree 1 3 |
First Trust and WisdomTree Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and WisdomTree
The main advantage of trading using opposite First Trust and WisdomTree positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, WisdomTree 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 WisdomTree will offset losses from the drop in WisdomTree's long position.| First Trust vs. FlexShares Disciplined Duration | First Trust vs. Vanguard Mortgage Backed Securities | First Trust vs. Simplify Exchange Traded | First Trust vs. WisdomTree Mortgage Plus |
| WisdomTree vs. SPDR Barclays Long | WisdomTree vs. SPDR Portfolio Intermediate | WisdomTree vs. SPDR Barclays Short | WisdomTree vs. SPDR Barclays Intermediate |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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