Correlation Between Industrial Select and First Trust
Can any of the company-specific risk be diversified away by investing in both Industrial 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 Industrial 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 Industrial Select Sector and First Trust IndustrialsProducer, you can compare the effects of market volatilities on Industrial 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 Industrial Select with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial Select and First Trust.
Diversification Opportunities for Industrial Select and First Trust
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Industrial and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Select Sector and First Trust IndustrialsProduce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Industri and Industrial 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 Industrial 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 Industri has no effect on the direction of Industrial Select i.e., Industrial Select and First Trust go up and down completely randomly.
Pair Corralation between Industrial Select and First Trust
Considering the 90-day investment horizon Industrial Select is expected to generate 2.21 times less return on investment than First Trust. But when comparing it to its historical volatility, Industrial Select Sector is 1.1 times less risky than First Trust. It trades about 0.12 of its potential returns per unit of risk. First Trust IndustrialsProducer is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 7,617 in First Trust IndustrialsProducer on August 24, 2024 and sell it today you would earn a total of 510.00 from holding First Trust IndustrialsProducer or generate 6.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Industrial Select Sector vs. First Trust IndustrialsProduce
Performance |
| Timeline |
| Industrial Select Sector |
| First Trust Industri |
Industrial Select and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Industrial Select and First Trust
The main advantage of trading using opposite Industrial Select and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial 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.| Industrial Select vs. Materials Select Sector | Industrial Select vs. Consumer Discretionary Select | Industrial Select vs. Consumer Staples Select | Industrial Select vs. Health Care Select |
| First Trust vs. First Trust Consumer | First Trust vs. First Trust Materials | First Trust vs. First Trust Financials | First Trust vs. First Trust Technology |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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