Correlation Between MicroSectors Big and First Trust

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

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

Diversification Opportunities for MicroSectors Big and First Trust

-0.45

Correlation Coefficient

MicroSectors Big  First Trust

Very good diversification

The 3 months correlation between MicroSectors and First is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors Big Oil and First Trust Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Technology and MicroSectors Big 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 MicroSectors Big Oil 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 Technology has no effect on the direction of MicroSectors Big i.e., MicroSectors Big and First Trust go up and down completely randomly.

Pair Corralation between MicroSectors Big and First Trust

Given the investment horizon of 90 days MicroSectors Big Oil is expected to generate 3.0 times more return on investment than First Trust. However, MicroSectors Big is 3.0 times more volatile than First Trust Technology. It trades about 0.03 of its potential returns per unit of risk. First Trust Technology is currently generating about 0.08 per unit of risk. If you would invest  43,834  in MicroSectors Big Oil on March 2, 2024 and sell it today you would earn a total of  5,155  from holding MicroSectors Big Oil or generate 11.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.65%
Values	Daily Returns

MicroSectors Big Oil  vs.  First Trust Technology

MicroSectors Big Oil

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors Big Oil are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, MicroSectors Big may actually be approaching a critical reversion point that can send shares even higher in July 2024.

First Trust Technology

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with MicroSectors Big and First Trust

The main advantage of trading using opposite MicroSectors Big and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors Big 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 MicroSectors Big Oil and First Trust Technology 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.