Correlation Between First Trust and SPDR SP
Can any of the company-specific risk be diversified away by investing in both First Trust and SPDR SP 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 First Trust and SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust IPOX and SPDR SP Global, you can compare the effects of market volatilities on First Trust and SPDR SP 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 First Trust with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and SPDR SP.
Diversification Opportunities for First Trust and SPDR SP
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and SPDR is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding First Trust IPOX and SPDR SP Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Global and First Trust 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 First Trust IPOX are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Global has no effect on the direction of First Trust i.e., First Trust and SPDR SP go up and down completely randomly.
Pair Corralation between First Trust and SPDR SP
Given the investment horizon of 90 days First Trust IPOX is expected to generate 1.42 times more return on investment than SPDR SP. However, First Trust is 1.42 times more volatile than SPDR SP Global. It trades about 0.05 of its potential returns per unit of risk. SPDR SP Global is currently generating about 0.02 per unit of risk. If you would invest 1,902 in First Trust IPOX on March 2, 2024 and sell it today you would earn a total of 668.00 from holding First Trust IPOX or generate 35.12% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 99.19% |
Values | Daily Returns |
First Trust IPOX vs. SPDR SP Global
Performance |
Timeline |
First Trust IPOX |
SPDR SP Global |
First Trust and SPDR SP Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with First Trust and SPDR SP
The main advantage of trading using opposite First Trust and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.First Trust vs. WisdomTree International MidCap | First Trust vs. WisdomTree Global High | First Trust vs. WisdomTree International SmallCap | First Trust vs. WisdomTree Japan SmallCap |
SPDR SP vs. iShares Global 100 | SPDR SP vs. iShares MSCI Belgium | SPDR SP vs. iShares MSCI Netherlands | SPDR SP vs. iShares Dow Jones |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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