Correlation Between WisdomTree CBOE and First Trust
Can any of the company-specific risk be diversified away by investing in both WisdomTree CBOE 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 WisdomTree CBOE and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WisdomTree CBOE SP and First Trust Mid, you can compare the effects of market volatilities on WisdomTree CBOE 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 WisdomTree CBOE with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree CBOE and First Trust.
Diversification Opportunities for WisdomTree CBOE and First Trust
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between WisdomTree and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree CBOE SP and First Trust Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Mid and WisdomTree CBOE 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 WisdomTree CBOE SP 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 Mid has no effect on the direction of WisdomTree CBOE i.e., WisdomTree CBOE and First Trust go up and down completely randomly.
Pair Corralation between WisdomTree CBOE and First Trust
Given the investment horizon of 90 days WisdomTree CBOE is expected to generate 1.42 times less return on investment than First Trust. But when comparing it to its historical volatility, WisdomTree CBOE SP is 1.95 times less risky than First Trust. It trades about 0.11 of its potential returns per unit of risk. First Trust Mid is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 5,772 in First Trust Mid on August 27, 2024 and sell it today you would earn a total of 2,960 from holding First Trust Mid or generate 51.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
WisdomTree CBOE SP vs. First Trust Mid
Performance |
| Timeline |
| WisdomTree CBOE SP |
| First Trust Mid |
WisdomTree CBOE and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WisdomTree CBOE and First Trust
The main advantage of trading using opposite WisdomTree CBOE and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree CBOE 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 WisdomTree CBOE SP and First Trust Mid 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. First Trust Small | First Trust vs. First Trust Mid | First Trust vs. First Trust Small | First Trust vs. First Trust Multi |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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