Correlation Between ETC 6 and First Trust

Can any of the company-specific risk be diversified away by investing in both ETC 6 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 ETC 6 and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ETC 6 Meridian and First Trust BuyWrite, you can compare the effects of market volatilities on ETC 6 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 ETC 6 with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETC 6 and First Trust.

Diversification Opportunities for ETC 6 and First Trust

0.48

Correlation Coefficient

ETC 6  First Trust

Very weak diversification

The 3 months correlation between ETC and First is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding ETC 6 Meridian and First Trust BuyWrite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust BuyWrite and ETC 6 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 ETC 6 Meridian 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 BuyWrite has no effect on the direction of ETC 6 i.e., ETC 6 and First Trust go up and down completely randomly.

Pair Corralation between ETC 6 and First Trust

Given the investment horizon of 90 days ETC 6 is expected to generate 6.67 times less return on investment than First Trust. But when comparing it to its historical volatility, ETC 6 Meridian is 1.0 times less risky than First Trust. It trades about 0.06 of its potential returns per unit of risk. First Trust BuyWrite is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  2,008  in First Trust BuyWrite on April 20, 2025 and sell it today you would earn a total of  298.00  from holding First Trust BuyWrite or generate 14.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

ETC 6 Meridian  vs.  First Trust BuyWrite

ETC 6 Meridian

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ETC 6 Meridian are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, ETC 6 is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

First Trust BuyWrite

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust BuyWrite are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, First Trust demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ETC 6 and First Trust

The main advantage of trading using opposite ETC 6 and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ETC 6 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 ETC 6 Meridian and First Trust BuyWrite 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.