Correlation Between Nasdaq and FIRST TRUST
Can any of the company-specific risk be diversified away by investing in both Nasdaq 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 Nasdaq and FIRST TRUST into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq Inc and FIRST TRUST GLOBAL, you can compare the effects of market volatilities on Nasdaq 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 Nasdaq with a short position of FIRST TRUST. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and FIRST TRUST.
Diversification Opportunities for Nasdaq and FIRST TRUST
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Nasdaq and FIRST is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and FIRST TRUST GLOBAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FIRST TRUST GLOBAL and Nasdaq 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 Nasdaq Inc 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 GLOBAL has no effect on the direction of Nasdaq i.e., Nasdaq and FIRST TRUST go up and down completely randomly.
Pair Corralation between Nasdaq and FIRST TRUST
Given the investment horizon of 90 days Nasdaq Inc is expected to under-perform the FIRST TRUST. In addition to that, Nasdaq is 2.77 times more volatile than FIRST TRUST GLOBAL. It trades about -0.19 of its total potential returns per unit of risk. FIRST TRUST GLOBAL is currently generating about -0.5 per unit of volatility. If you would invest 324,575 in FIRST TRUST GLOBAL on September 24, 2024 and sell it today you would lose (12,075) from holding FIRST TRUST GLOBAL or give up 3.72% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nasdaq Inc vs. FIRST TRUST GLOBAL
Performance |
| Timeline |
| Nasdaq Inc |
| FIRST TRUST GLOBAL |
Nasdaq and FIRST TRUST Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nasdaq and FIRST TRUST
The main advantage of trading using opposite Nasdaq and FIRST TRUST positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 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 Nasdaq Inc and FIRST TRUST GLOBAL 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. Vanguard FTSE Developed | FIRST TRUST vs. Leverage Shares 2x | FIRST TRUST vs. Amundi Index Solutions | FIRST TRUST vs. Amundi Index Solutions |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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