Correlation Between SPDR SP and First Trust
Can any of the company-specific risk be diversified away by investing in both SPDR SP 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 SP 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 SP 400 and First Trust Equity, you can compare the effects of market volatilities on SPDR SP 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 SP with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and First Trust.
Diversification Opportunities for SPDR SP and First Trust
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between SPDR and First is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 400 and First Trust Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Equity and SPDR SP 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 SP 400 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 Equity has no effect on the direction of SPDR SP i.e., SPDR SP and First Trust go up and down completely randomly.
Pair Corralation between SPDR SP and First Trust
Given the investment horizon of 90 days SPDR SP is expected to generate 2.94 times less return on investment than First Trust. But when comparing it to its historical volatility, SPDR SP 400 is 1.76 times less risky than First Trust. It trades about 0.19 of its potential returns per unit of risk. First Trust Equity is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 12,195 in First Trust Equity on November 8, 2024 and sell it today you would earn a total of 1,387 from holding First Trust Equity or generate 11.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR SP 400 vs. First Trust Equity
Performance |
| Timeline |
| SPDR SP 400 |
| First Trust Equity |
SPDR SP and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and First Trust
The main advantage of trading using opposite SPDR SP and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP 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 SPDR SP 400 and First Trust Equity 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. Invesco SP Spin Off | First Trust vs. Renaissance IPO ETF | First Trust vs. First Trust NYSE | First Trust vs. Invesco BuyBack Achievers |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
Other Complementary Tools
| Fundamental Analysis View fundamental data based on most recent published financial statements | |
| Stock Screener Find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook. | |
| Money Flow Index Determine momentum by analyzing Money Flow Index and other technical indicators | |
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| AI Portfolio Architect Use AI to generate optimal portfolios and find profitable investment opportunities |