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 Mid and SPDR SP 500, 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
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and SPDR is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Mid and SPDR SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 500 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 Mid 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 500 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
Considering the 90-day investment horizon First Trust Mid is expected to under-perform the SPDR SP. In addition to that, First Trust is 1.49 times more volatile than SPDR SP 500. It trades about -0.3 of its total potential returns per unit of risk. SPDR SP 500 is currently generating about -0.28 per unit of volatility. If you would invest 52,048 in SPDR SP 500 on January 20, 2024 and sell it today you would lose (2,096) from holding SPDR SP 500 or give up 4.03% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
First Trust Mid vs. SPDR SP 500
Performance |
| Timeline |
| First Trust Mid |
| SPDR SP 500 |
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. First Trust Small | First Trust vs. First Trust Mid | First Trust vs. First Trust Small | First Trust vs. First Trust Multi |
| SPDR SP vs. Dimensional Targeted Value | SPDR SP vs. Dimensional World ex | SPDR SP vs. Dimensional Small Cap |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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