Correlation Between Global X and First Trust

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

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

Diversification Opportunities for Global X and First Trust

0.85

Correlation Coefficient

Global X  First Trust

Very poor diversification

The 3 months correlation between Global and First is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Global X MLP and First Trust Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Energy and Global X 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 Global X MLP 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 Energy has no effect on the direction of Global X i.e., Global X and First Trust go up and down completely randomly.

Pair Corralation between Global X and First Trust

Given the investment horizon of 90 days Global X is expected to generate 2.67 times less return on investment than First Trust. But when comparing it to its historical volatility, Global X MLP is 1.54 times less risky than First Trust. It trades about 0.18 of its potential returns per unit of risk. First Trust Energy is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  1,369  in First Trust Energy on February 13, 2025 and sell it today you would earn a total of  197.00  from holding First Trust Energy or generate 14.39% return on investment over 90 days.

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

Global X MLP  vs.  First Trust Energy

Global X MLP

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global X MLP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Global X is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Trust Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Global X and First Trust

The main advantage of trading using opposite Global X and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global X 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 Global X MLP and First Trust Energy 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.