Correlation Between VanEck Biotech and First Trust
Can any of the company-specific risk be diversified away by investing in both VanEck Biotech 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 VanEck Biotech and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between VanEck Biotech ETF and First Trust NYSE, you can compare the effects of market volatilities on VanEck Biotech 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 VanEck Biotech with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of VanEck Biotech and First Trust.
Diversification Opportunities for VanEck Biotech and First Trust
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between VanEck and First is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Biotech ETF and First Trust NYSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NYSE and VanEck Biotech 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 VanEck Biotech ETF 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 NYSE has no effect on the direction of VanEck Biotech i.e., VanEck Biotech and First Trust go up and down completely randomly.
Pair Corralation between VanEck Biotech and First Trust
Considering the 90-day investment horizon VanEck Biotech ETF is expected to generate 1.03 times more return on investment than First Trust. However, VanEck Biotech is 1.03 times more volatile than First Trust NYSE. It trades about -0.21 of its potential returns per unit of risk. First Trust NYSE is currently generating about -0.23 per unit of risk. If you would invest 16,513 in VanEck Biotech ETF on January 26, 2024 and sell it today you would lose (780.00) from holding VanEck Biotech ETF or give up 4.72% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
VanEck Biotech ETF vs. First Trust NYSE
Performance |
| Timeline |
| VanEck Biotech ETF |
| First Trust NYSE |
VanEck Biotech and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with VanEck Biotech and First Trust
The main advantage of trading using opposite VanEck Biotech and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VanEck Biotech 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.| VanEck Biotech vs. iShares Insurance ETF | VanEck Biotech vs. SCOR PK | VanEck Biotech vs. Morningstar Unconstrained Allocation | VanEck Biotech vs. SPACE |
| First Trust vs. iShares Insurance ETF | First Trust vs. SCOR PK | First Trust vs. Morningstar Unconstrained Allocation | First Trust vs. SPACE |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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