Correlation Between Financial Select and First Trust
Can any of the company-specific risk be diversified away by investing in both Financial Select 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 Financial Select and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Select Sector and First Trust Enhanced, you can compare the effects of market volatilities on Financial Select 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 Financial Select with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Select and First Trust.
Diversification Opportunities for Financial Select and First Trust
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Financial and First is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and First Trust Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Enhanced and Financial Select 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 Financial Select Sector 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 Enhanced has no effect on the direction of Financial Select i.e., Financial Select and First Trust go up and down completely randomly.
Pair Corralation between Financial Select and First Trust
Considering the 90-day investment horizon Financial Select Sector is expected to generate 2.46 times more return on investment than First Trust. However, Financial Select is 2.46 times more volatile than First Trust Enhanced. It trades about 0.33 of its potential returns per unit of risk. First Trust Enhanced is currently generating about 0.33 per unit of risk. If you would invest 4,648 in Financial Select Sector on September 1, 2024 and sell it today you would earn a total of 486.00 from holding Financial Select Sector or generate 10.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Select Sector vs. First Trust Enhanced
Performance |
| Timeline |
| Financial Select Sector |
| First Trust Enhanced |
Financial Select and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Select and First Trust
The main advantage of trading using opposite Financial Select and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Select 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.| Financial Select vs. Vanguard Financials Index | Financial Select vs. SPDR SP Bank | Financial Select vs. Fidelity MSCI Financials | Financial Select vs. iShares Financial Services |
| First Trust vs. Rivernorth Opportunistic Municipalome | First Trust vs. Blackrock Muni Intermediate | First Trust vs. Blackrock Muniholdings Ny | First Trust vs. Nuveen New York |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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