Correlation Between SPDR SP and First Trust
Can any of the company-specific risk be diversified away by investing in both SPDR SP 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 SPDR SP and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP Oil and First Trust Morningstar, you can compare the effects of market volatilities on SPDR SP 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 SPDR SP with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and First Trust.
Diversification Opportunities for SPDR SP and First Trust
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between SPDR and First is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Oil and First Trust Morningstar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Morningstar and SPDR SP 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 SPDR SP Oil 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 Morningstar has no effect on the direction of SPDR SP i.e., SPDR SP and First Trust go up and down completely randomly.
Pair Corralation between SPDR SP and First Trust
Considering the 90-day investment horizon SPDR SP is expected to generate 1.27 times less return on investment than First Trust. In addition to that, SPDR SP is 1.99 times more volatile than First Trust Morningstar. It trades about 0.03 of its total potential returns per unit of risk. First Trust Morningstar is currently generating about 0.07 per unit of volatility. If you would invest 3,347 in First Trust Morningstar on August 30, 2024 and sell it today you would earn a total of 1,038 from holding First Trust Morningstar or generate 31.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR SP Oil vs. First Trust Morningstar
Performance |
| Timeline |
| SPDR SP Oil |
| First Trust Morningstar |
SPDR SP and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and First Trust
The main advantage of trading using opposite SPDR SP and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP 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.| SPDR SP vs. VanEck Oil Services | SPDR SP vs. SPDR SP Metals | SPDR SP vs. Energy Select Sector | SPDR SP vs. SPDR SP Retail |
| First Trust vs. First Trust Value | First Trust vs. Invesco High Yield | First Trust vs. WisdomTree High Dividend | First Trust vs. Invesco Dividend Achievers |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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