Correlation Between SPDR SP and First Trust

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

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

Diversification Opportunities for SPDR SP and First Trust

0.98

Correlation Coefficient

SPDR SP  First Trust

Almost no diversification

The 3 months correlation between SPDR and First is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Dividend and First Trust Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Mid and SPDR SP 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 SPDR SP Dividend 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 Mid has no effect on the direction of SPDR SP i.e., SPDR SP and First Trust go up and down completely randomly.

Pair Corralation between SPDR SP and First Trust

Considering the 90-day investment horizon SPDR SP is expected to generate 1.62 times less return on investment than First Trust. But when comparing it to its historical volatility, SPDR SP Dividend is 1.57 times less risky than First Trust. It trades about 0.16 of its potential returns per unit of risk. First Trust Mid is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  4,751  in First Trust Mid on April 26, 2025 and sell it today you would earn a total of  608.00  from holding First Trust Mid or generate 12.8% return on investment over 90 days.

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

SPDR SP Dividend  vs.  First Trust Mid

SPDR SP Dividend

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Dividend are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in August 2025.

First Trust Mid

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Mid are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, First Trust disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SPDR SP and First Trust

The main advantage of trading using opposite SPDR SP and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP 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 SPDR SP Dividend and First Trust Mid 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.