Correlation Between ETRACS Monthly and First Trust

Can any of the company-specific risk be diversified away by investing in both ETRACS Monthly 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 ETRACS Monthly and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ETRACS Monthly Pay and First Trust LongShort, you can compare the effects of market volatilities on ETRACS Monthly 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 ETRACS Monthly with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETRACS Monthly and First Trust.

Diversification Opportunities for ETRACS Monthly and First Trust

0.74

Correlation Coefficient

ETRACS Monthly  First Trust

Poor diversification

The 3 months correlation between ETRACS and First is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding ETRACS Monthly Pay and First Trust LongShort in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust LongShort and ETRACS Monthly 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 ETRACS Monthly Pay 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 LongShort has no effect on the direction of ETRACS Monthly i.e., ETRACS Monthly and First Trust go up and down completely randomly.

Pair Corralation between ETRACS Monthly and First Trust

Given the investment horizon of 90 days ETRACS Monthly is expected to generate 1.9 times less return on investment than First Trust. In addition to that, ETRACS Monthly is 1.82 times more volatile than First Trust LongShort. It trades about 0.02 of its total potential returns per unit of risk. First Trust LongShort is currently generating about 0.07 per unit of volatility. If you would invest  4,873  in First Trust LongShort on February 12, 2024 and sell it today you would earn a total of  1,188  from holding First Trust LongShort or generate 24.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

ETRACS Monthly Pay  vs.  First Trust LongShort

ETRACS Monthly Pay

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ETRACS Monthly Pay are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, ETRACS Monthly is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

First Trust LongShort

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust LongShort are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, First Trust is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with ETRACS Monthly and First Trust

The main advantage of trading using opposite ETRACS Monthly and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ETRACS Monthly 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 ETRACS Monthly Pay and First Trust LongShort 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.

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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.