Correlation Between First Trust and Materials Select

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Can any of the company-specific risk be diversified away by investing in both First Trust and Materials 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 Materials Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Exchange Traded and Materials Select Sector, you can compare the effects of market volatilities on First Trust and Materials 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 Materials Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and Materials Select.

Diversification Opportunities for First Trust and Materials Select

0.19
  Correlation Coefficient

Average diversification

The 3 months correlation between First and Materials is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange-Traded and Materials Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materials 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 Exchange Traded are associated (or correlated) with Materials Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materials Select Sector has no effect on the direction of First Trust i.e., First Trust and Materials Select go up and down completely randomly.

Pair Corralation between First Trust and Materials Select

Given the investment horizon of 90 days First Trust Exchange Traded is expected to under-perform the Materials Select. In addition to that, First Trust is 1.17 times more volatile than Materials Select Sector. It trades about -0.03 of its total potential returns per unit of risk. Materials Select Sector is currently generating about 0.25 per unit of volatility. If you would invest  8,358  in Materials Select Sector on December 3, 2023 and sell it today you would earn a total of  438.00  from holding Materials Select Sector or generate 5.24% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

First Trust Exchange-Traded  vs.  Materials Select Sector

 Performance 
       Timeline  
First Trust Exchange 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Weak
Over the last 90 days First Trust Exchange Traded has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
Materials Select Sector 

Risk-Adjusted Performance

9 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Materials Select Sector are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal essential indicators, Materials Select may actually be approaching a critical reversion point that can send shares even higher in April 2024.

First Trust and Materials Select Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with First Trust and Materials Select

The main advantage of trading using opposite First Trust and Materials Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Materials 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 Materials Select will offset losses from the drop in Materials Select's long position.
The idea behind First Trust Exchange Traded and Materials Select Sector 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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