Correlation Between Technology Select and First Trust
Can any of the company-specific risk be diversified away by investing in both Technology 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 Technology 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 Technology Select Sector and First Trust Mid, you can compare the effects of market volatilities on Technology 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 Technology Select with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Technology Select and First Trust.
Diversification Opportunities for Technology Select and First Trust
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Technology and First is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Technology Select Sector and First Trust Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Mid and Technology 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 Technology 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 Mid has no effect on the direction of Technology Select i.e., Technology Select and First Trust go up and down completely randomly.
Pair Corralation between Technology Select and First Trust
Considering the 90-day investment horizon Technology Select is expected to generate 4.91 times less return on investment than First Trust. In addition to that, Technology Select is 1.01 times more volatile than First Trust Mid. It trades about 0.06 of its total potential returns per unit of risk. First Trust Mid is currently generating about 0.29 per unit of volatility. If you would invest 8,071 in First Trust Mid on August 27, 2024 and sell it today you would earn a total of 661.00 from holding First Trust Mid or generate 8.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Technology Select Sector vs. First Trust Mid
Performance |
| Timeline |
| Technology Select Sector |
| First Trust Mid |
Technology Select and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Technology Select and First Trust
The main advantage of trading using opposite Technology Select and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Technology 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.| Technology Select vs. Invesco DWA Utilities | Technology Select vs. Invesco Dynamic Large | Technology Select vs. Invesco Dynamic Large | Technology Select vs. HUMANA INC |
| First Trust vs. First Trust Small | First Trust vs. First Trust Mid | First Trust vs. First Trust Small | First Trust vs. First Trust Multi |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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