Correlation Between VanEck Semiconductor and First Trust

Can any of the company-specific risk be diversified away by investing in both VanEck Semiconductor 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 Semiconductor 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 Semiconductor ETF and First Trust Dow, you can compare the effects of market volatilities on VanEck Semiconductor 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 Semiconductor with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of VanEck Semiconductor and First Trust.

Diversification Opportunities for VanEck Semiconductor and First Trust

0.49

Correlation Coefficient

VanEck Semiconductor  First Trust

Very weak diversification

The 3 months correlation between VanEck and First is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Semiconductor ETF and First Trust Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Dow and VanEck Semiconductor 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 Semiconductor 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 Dow has no effect on the direction of VanEck Semiconductor i.e., VanEck Semiconductor and First Trust go up and down completely randomly.

Pair Corralation between VanEck Semiconductor and First Trust

Considering the 90-day investment horizon VanEck Semiconductor ETF is expected to under-perform the First Trust. In addition to that, VanEck Semiconductor is 1.72 times more volatile than First Trust Dow. It trades about -0.01 of its total potential returns per unit of risk. First Trust Dow is currently generating about 0.02 per unit of volatility. If you would invest  19,917  in First Trust Dow on February 4, 2024 and sell it today you would earn a total of  177.00  from holding First Trust Dow or generate 0.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.73%
Values	Daily Returns

VanEck Semiconductor ETF  vs.  First Trust Dow

VanEck Semiconductor ETF

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Semiconductor ETF are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak primary indicators, VanEck Semiconductor may actually be approaching a critical reversion point that can send shares even higher in June 2024.

First Trust Dow

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Dow are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with VanEck Semiconductor and First Trust

The main advantage of trading using opposite VanEck Semiconductor and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VanEck Semiconductor 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 VanEck Semiconductor ETF and First Trust Dow 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.