Correlation Between Tech Leaders and First Trust
Can any of the company-specific risk be diversified away by investing in both Tech Leaders 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 Tech Leaders and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tech Leaders Income and First Trust Dow, you can compare the effects of market volatilities on Tech Leaders 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 Tech Leaders with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tech Leaders and First Trust.
Diversification Opportunities for Tech Leaders and First Trust
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Tech and First is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Tech Leaders Income and First Trust Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Dow and Tech Leaders 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 Tech Leaders Income 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 Dow has no effect on the direction of Tech Leaders i.e., Tech Leaders and First Trust go up and down completely randomly.
Pair Corralation between Tech Leaders and First Trust
Assuming the 90 days trading horizon Tech Leaders is expected to generate 2.16 times less return on investment than First Trust. But when comparing it to its historical volatility, Tech Leaders Income is 1.18 times less risky than First Trust. It trades about 0.18 of its potential returns per unit of risk. First Trust Dow is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest 2,518 in First Trust Dow on September 2, 2024 and sell it today you would earn a total of 238.00 from holding First Trust Dow or generate 9.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tech Leaders Income vs. First Trust Dow
Performance |
| Timeline |
| Tech Leaders Income |
| First Trust Dow |
Tech Leaders and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tech Leaders and First Trust
The main advantage of trading using opposite Tech Leaders and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tech Leaders 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.| Tech Leaders vs. iShares Canadian HYBrid | Tech Leaders vs. Brompton European Dividend | Tech Leaders vs. Solar Alliance Energy | Tech Leaders vs. PHN Multi Style All Cap |
| First Trust vs. First Trust NASDAQ | First Trust vs. First Trust Cloud | First Trust vs. Global X Industry | First Trust vs. First Trust NYSE |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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