Correlation Between First Trust and ARK Genomic

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

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

Diversification Opportunities for First Trust and ARK Genomic

0.65

Correlation Coefficient

First Trust  ARK Genomic

Poor diversification

The 3 months correlation between First and ARK is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Health and ARK Genomic Revolution in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARK Genomic Revolution 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 Health are associated (or correlated) with ARK Genomic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARK Genomic Revolution has no effect on the direction of First Trust i.e., First Trust and ARK Genomic go up and down completely randomly.

Pair Corralation between First Trust and ARK Genomic

Considering the 90-day investment horizon First Trust Health is expected to generate 0.33 times more return on investment than ARK Genomic. However, First Trust Health is 3.04 times less risky than ARK Genomic. It trades about 0.01 of its potential returns per unit of risk. ARK Genomic Revolution is currently generating about -0.15 per unit of risk. If you would invest  10,520  in First Trust Health on February 12, 2024 and sell it today you would earn a total of  29.00  from holding First Trust Health or generate 0.28% return on investment over 90 days.

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

First Trust Health  vs.  ARK Genomic Revolution

First Trust Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, First Trust is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

ARK Genomic Revolution

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ARK Genomic Revolution has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Etf's forward-looking signals remain nearly stable which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long-run up-swing for the Exchange Traded Fund stockholders.

Pair Trading with First Trust and ARK Genomic

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

The idea behind First Trust Health and ARK Genomic Revolution 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.