Correlation Between First Trust and ProShares

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

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

Diversification Opportunities for First Trust and ProShares

0.65

Correlation Coefficient

First Trust  ProShares

Poor diversification

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

Pair Corralation between First Trust and ProShares

Allowing for the 90-day total investment horizon First Trust Dorsey is expected to under-perform the ProShares. In addition to that, First Trust is 1.42 times more volatile than ProShares SP MidCap. It trades about -0.12 of its total potential returns per unit of risk. ProShares SP MidCap is currently generating about 0.05 per unit of volatility. If you would invest  7,480  in ProShares SP MidCap on February 2, 2024 and sell it today you would earn a total of  110.00  from holding ProShares SP MidCap or generate 1.47% return on investment over 90 days.

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

First Trust Dorsey  vs.  ProShares SP MidCap

First Trust Dorsey

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days First Trust Dorsey 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 current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

ProShares SP MidCap

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares SP MidCap are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, ProShares is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with First Trust and ProShares

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

The idea behind First Trust Dorsey and ProShares SP MidCap 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.