Correlation Between Aptus Defined and First Trust

Can any of the company-specific risk be diversified away by investing in both Aptus Defined 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 Aptus Defined and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aptus Defined Risk and First Trust Multi Asset, you can compare the effects of market volatilities on Aptus Defined 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 Aptus Defined with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aptus Defined and First Trust.

Diversification Opportunities for Aptus Defined and First Trust

0.83

Correlation Coefficient

Aptus Defined  First Trust

Very poor diversification

The 3 months correlation between Aptus and First is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Aptus Defined Risk and First Trust Multi Asset in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Multi and Aptus Defined 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 Aptus Defined Risk 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 Multi has no effect on the direction of Aptus Defined i.e., Aptus Defined and First Trust go up and down completely randomly.

Pair Corralation between Aptus Defined and First Trust

Given the investment horizon of 90 days Aptus Defined Risk is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, Aptus Defined Risk is 1.24 times less risky than First Trust. The etf trades about -0.26 of its potential returns per unit of risk. The First Trust Multi Asset is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,554  in First Trust Multi Asset on January 25, 2024 and sell it today you would earn a total of  6.00  from holding First Trust Multi Asset or generate 0.39% return on investment over 90 days.

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

Aptus Defined Risk  vs.  First Trust Multi Asset

Aptus Defined Risk

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aptus Defined Risk are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Aptus Defined is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

First Trust Multi

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Multi Asset are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable forward indicators, First Trust is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Aptus Defined and First Trust

The main advantage of trading using opposite Aptus Defined and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aptus Defined 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 Aptus Defined Risk and First Trust Multi Asset 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.