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 NASDAQ and SPDR SP Semiconductor, 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

0.93

Correlation Coefficient

First Trust  SPDR SP

Almost no diversification

The 3 months correlation between First and SPDR is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding First Trust NASDAQ and SPDR SP Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Semiconductor 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 NASDAQ 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 Semiconductor 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

Given the investment horizon of 90 days First Trust is expected to generate 2.87 times less return on investment than SPDR SP. But when comparing it to its historical volatility, First Trust NASDAQ is 1.88 times less risky than SPDR SP. It trades about 0.18 of its potential returns per unit of risk. SPDR SP Semiconductor is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  19,514  in SPDR SP Semiconductor on May 1, 2025 and sell it today you would earn a total of  7,385  from holding SPDR SP Semiconductor or generate 37.84% return on investment over 90 days.

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

First Trust NASDAQ  vs.  SPDR SP Semiconductor

First Trust NASDAQ

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust NASDAQ are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental drivers, First Trust may actually be approaching a critical reversion point that can send shares even higher in August 2025.

SPDR SP Semiconductor

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Semiconductor are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, SPDR SP exhibited solid returns over the last few months and may actually be approaching a breakup point.

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.

The idea behind First Trust NASDAQ and SPDR SP Semiconductor 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..