Correlation Between SPACE and First Trust

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

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

Diversification Opportunities for SPACE and First Trust

0.39

Correlation Coefficient

SPACE  First Trust

Weak diversification

The 3 months correlation between SPACE and First is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding SPACE and First Trust NYSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NYSE and SPACE 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 SPACE 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 NYSE has no effect on the direction of SPACE i.e., SPACE and First Trust go up and down completely randomly.

Pair Corralation between SPACE and First Trust

Assuming the 90 days horizon SPACE is expected to under-perform the First Trust. In addition to that, SPACE is 4.76 times more volatile than First Trust NYSE. It trades about -0.19 of its total potential returns per unit of risk. First Trust NYSE is currently generating about -0.05 per unit of volatility. If you would invest  15,037  in First Trust NYSE on February 4, 2024 and sell it today you would lose (217.00) from holding First Trust NYSE or give up 1.44% of portfolio value over 90 days.

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

SPACE  vs.  First Trust NYSE

SPACE

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPACE are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, SPACE exhibited solid returns over the last few months and may actually be approaching a breakup point.

First Trust NYSE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust NYSE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, First Trust is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SPACE and First Trust

The main advantage of trading using opposite SPACE and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPACE 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 SPACE and First Trust NYSE 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.