Correlation Between First Trust and ALPS Clean

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

Diversification Opportunities for First Trust and ALPS Clean

0.65

Correlation Coefficient

First Trust  ALPS Clean

Poor diversification

The 3 months correlation between First and ALPS is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding First Trust NASDAQ and ALPS Clean Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPS Clean Energy 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 ALPS Clean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALPS Clean Energy has no effect on the direction of First Trust i.e., First Trust and ALPS Clean go up and down completely randomly.

Pair Corralation between First Trust and ALPS Clean

Given the investment horizon of 90 days First Trust NASDAQ is expected to generate 1.06 times more return on investment than ALPS Clean. However, First Trust is 1.06 times more volatile than ALPS Clean Energy. It trades about 0.28 of its potential returns per unit of risk. ALPS Clean Energy is currently generating about 0.24 per unit of risk. If you would invest  2,633  in First Trust NASDAQ on April 23, 2025 and sell it today you would earn a total of  1,010  from holding First Trust NASDAQ or generate 38.36% return on investment over 90 days.

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

First Trust NASDAQ  vs.  ALPS Clean Energy

First Trust NASDAQ

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust NASDAQ are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating essential indicators, First Trust displayed solid returns over the last few months and may actually be approaching a breakup point.

ALPS Clean Energy

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ALPS Clean Energy are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, ALPS Clean unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and ALPS Clean

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

The idea behind First Trust NASDAQ and ALPS Clean 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.