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 Biotech and First Trust NYSE, 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

0.93

Correlation Coefficient

SPDR SP  First Trust

Almost no diversification

The 3 months correlation between SPDR and First is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Biotech 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 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 Biotech 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 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 Biotech is expected to generate 1.86 times more return on investment than First Trust. However, SPDR SP is 1.86 times more volatile than First Trust NYSE. It trades about 0.13 of its potential returns per unit of risk. First Trust NYSE is currently generating about 0.11 per unit of risk. If you would invest  8,988  in SPDR SP Biotech on March 14, 2024 and sell it today you would earn a total of  394.00  from holding SPDR SP Biotech or generate 4.38% return on investment over 90 days.

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

SPDR SP Biotech  vs.  First Trust NYSE

SPDR SP Biotech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, SPDR SP is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

First Trust NYSE

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust NYSE are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, First Trust is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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.

The idea behind SPDR SP Biotech and First Trust NYSE 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.