Correlation Between Nasdaq 100 and First Trust
Can any of the company-specific risk be diversified away by investing in both Nasdaq 100 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 100 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 100 2x Strategy and First Trust Preferred, you can compare the effects of market volatilities on Nasdaq 100 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 100 with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq 100 and First Trust.
Diversification Opportunities for Nasdaq 100 and First Trust
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Nasdaq and First is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and First Trust Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Preferred and Nasdaq 100 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 100 2x Strategy 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 Preferred has no effect on the direction of Nasdaq 100 i.e., Nasdaq 100 and First Trust go up and down completely randomly.
Pair Corralation between Nasdaq 100 and First Trust
Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 12.95 times more return on investment than First Trust. However, Nasdaq 100 is 12.95 times more volatile than First Trust Preferred. It trades about 0.13 of its potential returns per unit of risk. First Trust Preferred is currently generating about -0.08 per unit of risk. If you would invest 37,877 in Nasdaq 100 2x Strategy on September 3, 2024 and sell it today you would earn a total of 3,857 from holding Nasdaq 100 2x Strategy or generate 10.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nasdaq 100 2x Strategy vs. First Trust Preferred
Performance |
| Timeline |
| Nasdaq 100 2x |
| First Trust Preferred |
Nasdaq 100 and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nasdaq 100 and First Trust
The main advantage of trading using opposite Nasdaq 100 and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 100 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.| Nasdaq 100 vs. The Hartford Emerging | Nasdaq 100 vs. Kinetics Market Opportunities | Nasdaq 100 vs. Morgan Stanley Emerging | Nasdaq 100 vs. Locorr Market Trend |
| First Trust vs. Nasdaq 100 2x Strategy | First Trust vs. The Emerging Markets | First Trust vs. T Rowe Price | First Trust vs. Shelton Emerging Markets |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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