Correlation Between SPDR Portfolio and First Trust

Can any of the company-specific risk be diversified away by investing in both SPDR Portfolio 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 Portfolio 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 Portfolio SP and First Trust Large, you can compare the effects of market volatilities on SPDR Portfolio 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 Portfolio with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Portfolio and First Trust.

Diversification Opportunities for SPDR Portfolio and First Trust

0.99

Correlation Coefficient

SPDR Portfolio  First Trust

No risk reduction

The 3 months correlation between SPDR and First is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio SP and First Trust Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Large and SPDR Portfolio 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 Portfolio SP 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 Large has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and First Trust go up and down completely randomly.

Pair Corralation between SPDR Portfolio and First Trust

Given the investment horizon of 90 days SPDR Portfolio SP is expected to generate 1.2 times more return on investment than First Trust. However, SPDR Portfolio is 1.2 times more volatile than First Trust Large. It trades about 0.35 of its potential returns per unit of risk. First Trust Large is currently generating about 0.36 per unit of risk. If you would invest  8,188  in SPDR Portfolio SP on April 30, 2025 and sell it today you would earn a total of  1,703  from holding SPDR Portfolio SP or generate 20.8% return on investment over 90 days.

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

SPDR Portfolio SP  vs.  First Trust Large

SPDR Portfolio SP

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio SP are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SPDR Portfolio reported solid returns over the last few months and may actually be approaching a breakup point.

First Trust Large

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Large are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, First Trust exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SPDR Portfolio and First Trust

The main advantage of trading using opposite SPDR Portfolio and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Portfolio 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 Portfolio SP and First Trust Large 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.