Correlation Between First Trust and WisdomTree Quality
Can any of the company-specific risk be diversified away by investing in both First Trust and WisdomTree Quality 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 Quality into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust NASDAQ 100 Technology and WisdomTree Quality Dividend, you can compare the effects of market volatilities on First Trust and WisdomTree Quality 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 Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and WisdomTree Quality.
Diversification Opportunities for First Trust and WisdomTree Quality
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and WisdomTree is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding First Trust NASDAQ 100 Technol and WisdomTree Quality Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Quality 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 NASDAQ 100 Technology are associated (or correlated) with WisdomTree Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Quality has no effect on the direction of First Trust i.e., First Trust and WisdomTree Quality go up and down completely randomly.
Pair Corralation between First Trust and WisdomTree Quality
Given the investment horizon of 90 days First Trust NASDAQ 100 Technology is expected to generate 2.1 times more return on investment than WisdomTree Quality. However, First Trust is 2.1 times more volatile than WisdomTree Quality Dividend. It trades about 0.08 of its potential returns per unit of risk. WisdomTree Quality Dividend is currently generating about 0.11 per unit of risk. If you would invest 12,153 in First Trust NASDAQ 100 Technology on November 21, 2024 and sell it today you would earn a total of 8,868 from holding First Trust NASDAQ 100 Technology or generate 72.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust NASDAQ 100 Technol vs. WisdomTree Quality Dividend
Performance |
| Timeline |
| First Trust NASDAQ |
| WisdomTree Quality |
First Trust and WisdomTree Quality Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and WisdomTree Quality
The main advantage of trading using opposite First Trust and WisdomTree Quality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, WisdomTree Quality 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 Quality will offset losses from the drop in WisdomTree Quality's long position.| First Trust vs. First Trust Technology | First Trust vs. First Trust NASDAQ 100 | First Trust vs. Invesco NASDAQ Internet | First Trust vs. First Trust Dow |
| WisdomTree Quality vs. iShares Core Dividend | WisdomTree Quality vs. WisdomTree LargeCap Dividend | WisdomTree Quality vs. WisdomTree MidCap Dividend | WisdomTree Quality vs. WisdomTree High Dividend |
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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