Correlation Between First Trust and Energy Select
Can any of the company-specific risk be diversified away by investing in both First Trust and Energy Select 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 Energy Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Energy and Energy Select Sector, you can compare the effects of market volatilities on First Trust and Energy Select 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 Energy Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Energy Select.
Diversification Opportunities for First Trust and Energy Select
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and Energy is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Energy and Energy Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Select Sector 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 Energy are associated (or correlated) with Energy Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Select Sector has no effect on the direction of First Trust i.e., First Trust and Energy Select go up and down completely randomly.
Pair Corralation between First Trust and Energy Select
Considering the 90-day investment horizon First Trust is expected to generate 1.11 times less return on investment than Energy Select. In addition to that, First Trust is 1.08 times more volatile than Energy Select Sector. It trades about 0.03 of its total potential returns per unit of risk. Energy Select Sector is currently generating about 0.04 per unit of volatility. If you would invest 7,369 in Energy Select Sector on December 29, 2023 and sell it today you would earn a total of 2,072 from holding Energy Select Sector or generate 28.12% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
First Trust Energy vs. Energy Select Sector
Performance |
Timeline |
First Trust Energy |
Energy Select Sector |
First Trust and Energy Select Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with First Trust and Energy Select
The main advantage of trading using opposite First Trust and Energy Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Energy Select 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 Energy Select will offset losses from the drop in Energy Select's long position.First Trust vs. Drum Income Plus | First Trust vs. EA Series Trust | First Trust vs. Global X MLP | First Trust vs. ETRACS Quarterly Pay |
Energy Select vs. Drum Income Plus | Energy Select vs. EA Series Trust | Energy Select vs. Global X MLP | Energy Select vs. ETRACS Quarterly Pay |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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