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 Nasdaq, 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
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Financial and First is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and First Trust Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Nasdaq 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 Nasdaq 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 0.56 times more return on investment than First Trust. However, Financial Select Sector is 1.8 times less risky than First Trust. It trades about 0.09 of its potential returns per unit of risk. First Trust Nasdaq is currently generating about 0.05 per unit of risk. If you would invest 3,379 in Financial Select Sector on August 24, 2024 and sell it today you would earn a total of 1,694 from holding Financial Select Sector or generate 50.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Select Sector vs. First Trust Nasdaq
Performance |
| Timeline |
| Financial Select Sector |
| First Trust Nasdaq |
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. Energy Select Sector | Financial Select vs. Technology Select Sector | Financial Select vs. Health Care Select | Financial Select vs. Industrial Select Sector |
| First Trust vs. First Trust NASDAQ | First Trust vs. First Trust Nasdaq | First Trust vs. First Trust Nasdaq | First Trust vs. Invesco KBW Regional |
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.
Other Complementary Tools
| Aroon Oscillator Analyze current equity momentum using Aroon Oscillator and other momentum ratios | |
| Stock Tickers Use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites | |
| Funds Screener Find actively-traded funds from around the world traded on over 30 global exchanges | |
| Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope | |
| CEOs Directory Screen CEOs from public companies around the world |