Correlation Between First Trust and Simplify Exchange

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

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

Diversification Opportunities for First Trust and Simplify Exchange

0.6

Correlation Coefficient

First Trust  Simplify Exchange

Poor diversification

The 3 months correlation between First and Simplify is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and Simplify Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simplify Exchange Traded and First Trust 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 First Trust Exchange Traded are associated (or correlated) with Simplify Exchange. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simplify Exchange Traded has no effect on the direction of First Trust i.e., First Trust and Simplify Exchange go up and down completely randomly.

Pair Corralation between First Trust and Simplify Exchange

Given the investment horizon of 90 days First Trust Exchange Traded is expected to generate 3.3 times more return on investment than Simplify Exchange. However, First Trust is 3.3 times more volatile than Simplify Exchange Traded. It trades about 0.09 of its potential returns per unit of risk. Simplify Exchange Traded is currently generating about 0.18 per unit of risk. If you would invest  1,492  in First Trust Exchange Traded on May 9, 2025 and sell it today you would earn a total of  54.00  from holding First Trust Exchange Traded or generate 3.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

First Trust Exchange Traded  vs.  Simplify Exchange Traded

First Trust Exchange

Risk-Adjusted Performance

Mild

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

Simplify Exchange Traded

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Simplify Exchange Traded are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Simplify Exchange is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and Simplify Exchange

The main advantage of trading using opposite First Trust and Simplify Exchange positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, Simplify Exchange 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 Simplify Exchange will offset losses from the drop in Simplify Exchange's long position.

The idea behind First Trust Exchange Traded and Simplify 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.