Correlation Between First Trust and SPDR Barclays

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

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

Diversification Opportunities for First Trust and SPDR Barclays

0.99

Correlation Coefficient

First Trust  SPDR Barclays

No risk reduction

The 3 months correlation between First and SPDR is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Long and SPDR Barclays Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Barclays Long 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 Long are associated (or correlated) with SPDR Barclays. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Barclays Long has no effect on the direction of First Trust i.e., First Trust and SPDR Barclays go up and down completely randomly.

Pair Corralation between First Trust and SPDR Barclays

Given the investment horizon of 90 days First Trust Long is expected to under-perform the SPDR Barclays. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Long is 1.3 times less risky than SPDR Barclays. The etf trades about -0.32 of its potential returns per unit of risk. The SPDR Barclays Long is currently generating about -0.24 of returns per unit of risk over similar time horizon. If you would invest  2,755  in SPDR Barclays Long on January 23, 2024 and sell it today you would lose (117.00) from holding SPDR Barclays Long or give up 4.25% of portfolio value over 90 days.

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

First Trust Long  vs.  SPDR Barclays Long

First Trust Long

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Long has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, First Trust is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

SPDR Barclays Long

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Barclays Long has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, SPDR Barclays is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with First Trust and SPDR Barclays

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

The idea behind First Trust Long and SPDR Barclays Long 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.