Correlation Between First Trust and MicroSectors FANG

Can any of the company-specific risk be diversified away by investing in both First Trust and MicroSectors FANG 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 MicroSectors FANG 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 MicroSectors FANG ETN, you can compare the effects of market volatilities on First Trust and MicroSectors FANG 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 MicroSectors FANG. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and MicroSectors FANG.

Diversification Opportunities for First Trust and MicroSectors FANG

0.91

Correlation Coefficient

First Trust  MicroSectors FANG

Almost no diversification

The 3 months correlation between First and MicroSectors is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dorsey and MicroSectors FANG ETN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors FANG ETN 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 MicroSectors FANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors FANG ETN has no effect on the direction of First Trust i.e., First Trust and MicroSectors FANG go up and down completely randomly.

Pair Corralation between First Trust and MicroSectors FANG

Allowing for the 90-day total investment horizon First Trust is expected to generate 2.85 times less return on investment than MicroSectors FANG. But when comparing it to its historical volatility, First Trust Dorsey is 1.39 times less risky than MicroSectors FANG. It trades about 0.1 of its potential returns per unit of risk. MicroSectors FANG ETN is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  5,916  in MicroSectors FANG ETN on May 18, 2025 and sell it today you would earn a total of  775.00  from holding MicroSectors FANG ETN or generate 13.1% 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 Dorsey  vs.  MicroSectors FANG ETN

First Trust Dorsey

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Dorsey are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, First Trust is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

MicroSectors FANG ETN

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG ETN are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, MicroSectors FANG unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and MicroSectors FANG

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

The idea behind First Trust Dorsey and MicroSectors FANG ETN 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.