Correlation Between Volatility Shares and First Trust

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

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

Diversification Opportunities for Volatility Shares and First Trust

0.8

Correlation Coefficient

Volatility Shares  First Trust

Very poor diversification

The 3 months correlation between Volatility and First is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Volatility Shares Trust and First Trust Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Equity and Volatility Shares 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 Volatility Shares Trust 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 Equity has no effect on the direction of Volatility Shares i.e., Volatility Shares and First Trust go up and down completely randomly.

Pair Corralation between Volatility Shares and First Trust

Given the investment horizon of 90 days Volatility Shares Trust is expected to generate 3.14 times more return on investment than First Trust. However, Volatility Shares is 3.14 times more volatile than First Trust Equity. It trades about 0.17 of its potential returns per unit of risk. First Trust Equity is currently generating about 0.26 per unit of risk. If you would invest  4,287  in Volatility Shares Trust on May 3, 2025 and sell it today you would earn a total of  1,868  from holding Volatility Shares Trust or generate 43.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

Volatility Shares Trust  vs.  First Trust Equity

Volatility Shares Trust

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Volatility Shares Trust are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Volatility Shares showed solid returns over the last few months and may actually be approaching a breakup point.

First Trust Equity

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Equity are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, First Trust showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volatility Shares and First Trust

The main advantage of trading using opposite Volatility Shares and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volatility Shares 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 Volatility Shares Trust and First Trust Equity 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.