Correlation Between Financial Select and First Trust
Can any of the company-specific risk be diversified away by investing in both Financial Select 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 Financial Select and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Select Sector and First Trust Dow, you can compare the effects of market volatilities on Financial Select 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 Financial Select with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Select and First Trust.
Diversification Opportunities for Financial Select and First Trust
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Financial and First is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector 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 Financial Select 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 Financial Select Sector 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 Financial Select i.e., Financial Select and First Trust go up and down completely randomly.
Pair Corralation between Financial Select and First Trust
Considering the 90-day investment horizon Financial Select Sector is expected to generate 1.26 times more return on investment than First Trust. However, Financial Select is 1.26 times more volatile than First Trust Dow. It trades about 0.12 of its potential returns per unit of risk. First Trust Dow is currently generating about 0.08 per unit of risk. If you would invest 3,250 in Financial Select Sector on January 26, 2024 and sell it today you would earn a total of 862.00 from holding Financial Select Sector or generate 26.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.6% |
| Values | Daily Returns |
Financial Select Sector vs. First Trust Dow
Performance |
| Timeline |
| Financial Select Sector |
| First Trust Dow |
Financial Select and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Select and First Trust
The main advantage of trading using opposite Financial Select and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Select 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.| Financial Select vs. Merck Company | Financial Select vs. Chevron Corp | Financial Select vs. MagnaChip Semiconductor |
| First Trust vs. Hartford Multifactor Emerging | First Trust vs. Hartford Multifactor Developed | First Trust vs. iShares Equity Factor | First Trust vs. SPDR MSCI USA |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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