Correlation Between First Trust and WisdomTree Managed
Can any of the company-specific risk be diversified away by investing in both First Trust and WisdomTree Managed 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 WisdomTree Managed into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Managed and WisdomTree Managed Futures, you can compare the effects of market volatilities on First Trust and WisdomTree Managed 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 WisdomTree Managed. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and WisdomTree Managed.
Diversification Opportunities for First Trust and WisdomTree Managed
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and WisdomTree is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Managed and WisdomTree Managed Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Managed 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 Managed are associated (or correlated) with WisdomTree Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Managed has no effect on the direction of First Trust i.e., First Trust and WisdomTree Managed go up and down completely randomly.
Pair Corralation between First Trust and WisdomTree Managed
Considering the 90-day investment horizon First Trust Managed is expected to under-perform the WisdomTree Managed. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Managed is 1.19 times less risky than WisdomTree Managed. The etf trades about -0.22 of its potential returns per unit of risk. The WisdomTree Managed Futures is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest 3,736 in WisdomTree Managed Futures on January 26, 2024 and sell it today you would lose (45.00) from holding WisdomTree Managed Futures or give up 1.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
First Trust Managed vs. WisdomTree Managed Futures
Performance |
| Timeline |
| First Trust Managed |
| WisdomTree Managed |
First Trust and WisdomTree Managed Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and WisdomTree Managed
The main advantage of trading using opposite First Trust and WisdomTree Managed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, WisdomTree Managed 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 WisdomTree Managed will offset losses from the drop in WisdomTree Managed's long position.The idea behind First Trust Managed and WisdomTree Managed Futures 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.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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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