Correlation Between Nasdaq 100 and First Trust

Can any of the company-specific risk be diversified away by investing in both Nasdaq 100 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 Nasdaq 100 and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nasdaq 100 2x Strategy and First Trust Managed, you can compare the effects of market volatilities on Nasdaq 100 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 Nasdaq 100 with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq 100 and First Trust.

Diversification Opportunities for Nasdaq 100 and First Trust

0.09

Correlation Coefficient

Nasdaq 100  First Trust

Significant diversification

The 3 months correlation between Nasdaq and First is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and First Trust Managed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Managed and Nasdaq 100 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 Nasdaq 100 2x Strategy 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 Managed has no effect on the direction of Nasdaq 100 i.e., Nasdaq 100 and First Trust go up and down completely randomly.

Pair Corralation between Nasdaq 100 and First Trust

Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 15.3 times more return on investment than First Trust. However, Nasdaq 100 is 15.3 times more volatile than First Trust Managed. It trades about 0.22 of its potential returns per unit of risk. First Trust Managed is currently generating about -0.04 per unit of risk. If you would invest  32,924  in Nasdaq 100 2x Strategy on May 4, 2025 and sell it today you would earn a total of  9,003  from holding Nasdaq 100 2x Strategy or generate 27.34% return on investment over 90 days.

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

Nasdaq 100 2x Strategy  vs.  First Trust Managed

Nasdaq 100 2x

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 2x Strategy are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly unfluctuating fundamental indicators, Nasdaq 100 showed solid returns over the last few months and may actually be approaching a breakup point.

First Trust Managed

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Managed has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, First Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nasdaq 100 and First Trust

The main advantage of trading using opposite Nasdaq 100 and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 100 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 Nasdaq 100 2x Strategy and First Trust Managed 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.