Correlation Between First Trust and ALPS Clean

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

By analyzing existing cross correlation between First Trust Natural and ALPS Clean Energy, you can compare the effects of market volatilities on First Trust and ALPS Clean 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 ALPS Clean. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and ALPS Clean.

Diversification Opportunities for First Trust and ALPS Clean

-0.7

Correlation Coefficient

First Trust  ALPS Clean

Excellent diversification

The 3 months correlation between First and ALPS is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Natural and ALPS Clean Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPS Clean Energy 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 Natural are associated (or correlated) with ALPS Clean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALPS Clean Energy has no effect on the direction of First Trust i.e., First Trust and ALPS Clean go up and down completely randomly.

Pair Corralation between First Trust and ALPS Clean

Considering the 90-day investment horizon First Trust Natural is expected to generate 0.54 times more return on investment than ALPS Clean. However, First Trust Natural is 1.84 times less risky than ALPS Clean. It trades about -0.07 of its potential returns per unit of risk. ALPS Clean Energy is currently generating about -0.17 per unit of risk. If you would invest  2,760  in First Trust Natural on February 1, 2024 and sell it today you would lose (46.00) from holding First Trust Natural or give up 1.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

First Trust Natural  vs.  ALPS Clean Energy

First Trust Natural

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Natural are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal fundamental indicators, First Trust reported solid returns over the last few months and may actually be approaching a breakup point.

ALPS Clean Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALPS Clean Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with First Trust and ALPS Clean

The main advantage of trading using opposite First Trust and ALPS Clean positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, ALPS Clean 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 ALPS Clean will offset losses from the drop in ALPS Clean's long position.

The idea behind First Trust Natural and ALPS Clean Energy 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.