Correlation Between Financial Services and First Trust

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

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

Diversification Opportunities for Financial Services and First Trust

0.11

Correlation Coefficient

Financial Services  First Trust

Average diversification

The 3 months correlation between FINANCIAL and First is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Financial Services Fund and First Trust Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Exchange and Financial Services 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 Financial Services Fund 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 Exchange has no effect on the direction of Financial Services i.e., Financial Services and First Trust go up and down completely randomly.

Pair Corralation between Financial Services and First Trust

Assuming the 90 days horizon Financial Services Fund is expected to generate 0.41 times more return on investment than First Trust. However, Financial Services Fund is 2.43 times less risky than First Trust. It trades about 0.0 of its potential returns per unit of risk. First Trust Exchange Traded is currently generating about -0.05 per unit of risk. If you would invest  10,571  in Financial Services Fund on July 28, 2025 and sell it today you would lose (13.00) from holding Financial Services Fund or give up 0.12% of portfolio value over 90 days.

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

Financial Services Fund  vs.  First Trust Exchange Traded

Financial Services

Risk-Adjusted Performance

Weakest

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

First Trust Exchange

Risk-Adjusted Performance

Weakest

Over the last 90 days First Trust Exchange Traded has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, First Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Financial Services and First Trust

The main advantage of trading using opposite Financial Services and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Services 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 Financial Services Fund and First Trust Exchange Traded 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.