Correlation Between Technology Select and First Trust

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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 Cloud, 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

0.48
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Technology and First is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Technology Select Sector and First Trust Cloud in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Cloud 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 Cloud 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 10.08 times less return on investment than First Trust. In addition to that, Technology Select is 1.18 times more volatile than First Trust Cloud. It trades about 0.02 of its total potential returns per unit of risk. First Trust Cloud is currently generating about 0.24 per unit of volatility. If you would invest  12,073  in First Trust Cloud on November 9, 2024 and sell it today you would earn a total of  847.00  from holding First Trust Cloud or generate 7.02% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Technology Select Sector  vs.  First Trust Cloud

 Performance 
       Timeline  
Technology Select Sector 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Technology Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Technology Select is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.
First Trust Cloud 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Cloud are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in March 2025.

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.
The idea behind Technology Select Sector and First Trust Cloud pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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