Correlation Between SPDR Barclays and First Trust

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

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

Diversification Opportunities for SPDR Barclays and First Trust

0.99

Correlation Coefficient

SPDR Barclays  First Trust

No risk reduction

The 3 months correlation between SPDR and First is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Barclays Long and First Trust Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Long and SPDR Barclays 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 SPDR Barclays Long 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 Long has no effect on the direction of SPDR Barclays i.e., SPDR Barclays and First Trust go up and down completely randomly.

Pair Corralation between SPDR Barclays and First Trust

Given the investment horizon of 90 days SPDR Barclays Long is expected to generate 1.35 times more return on investment than First Trust. However, SPDR Barclays is 1.35 times more volatile than First Trust Long. It trades about 0.2 of its potential returns per unit of risk. First Trust Long is currently generating about 0.22 per unit of risk. If you would invest  2,693  in SPDR Barclays Long on March 21, 2024 and sell it today you would earn a total of  102.00  from holding SPDR Barclays Long or generate 3.79% return on investment over 90 days.

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

SPDR Barclays Long  vs.  First Trust Long

SPDR Barclays Long

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Barclays Long are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, SPDR Barclays is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

First Trust Long

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Long are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, First Trust is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with SPDR Barclays and First Trust

The main advantage of trading using opposite SPDR Barclays and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Barclays 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 SPDR Barclays Long and First Trust 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.

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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.