Correlation Between First Trust and SPDR SP
Can any of the company-specific risk be diversified away by investing in both First Trust and SPDR SP 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 SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Financials and SPDR SP Insurance, you can compare the effects of market volatilities on First Trust and SPDR SP 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 SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and SPDR SP.
Diversification Opportunities for First Trust and SPDR SP
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and SPDR is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Financials and SPDR SP Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Insurance 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 Financials are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Insurance has no effect on the direction of First Trust i.e., First Trust and SPDR SP go up and down completely randomly.
Pair Corralation between First Trust and SPDR SP
Considering the 90-day investment horizon First Trust Financials is expected to generate 1.0 times more return on investment than SPDR SP. However, First Trust is 1.0 times more volatile than SPDR SP Insurance. It trades about -0.1 of its potential returns per unit of risk. SPDR SP Insurance is currently generating about -0.19 per unit of risk. If you would invest 4,647 in First Trust Financials on January 24, 2024 and sell it today you would lose (98.00) from holding First Trust Financials or give up 2.11% 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 Financials vs. SPDR SP Insurance
Performance |
Timeline |
First Trust Financials |
SPDR SP Insurance |
First Trust and SPDR SP Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with First Trust and SPDR SP
The main advantage of trading using opposite First Trust and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, SPDR SP 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 SP will offset losses from the drop in SPDR SP's long position.First Trust vs. Virtus InfraCap Preferred | First Trust vs. XAI Octagon Floating | First Trust vs. Amplify High Income | First Trust vs. Triplepoint Venture Growth |
SPDR SP vs. Virtus InfraCap Preferred | SPDR SP vs. XAI Octagon Floating | SPDR SP vs. Amplify High Income | SPDR SP vs. Triplepoint Venture Growth |
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.
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