Correlation Between First Trust and SPDR SP

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

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

Diversification Opportunities for First Trust and SPDR SP

-0.17

Correlation Coefficient

First Trust  SPDR SP

Good diversification

The 3 months correlation between First and SPDR is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Expanded and SPDR SP Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Health 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 Expanded are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Health has no effect on the direction of First Trust i.e., First Trust and SPDR SP go up and down completely randomly.

Pair Corralation between First Trust and SPDR SP

Given the investment horizon of 90 days First Trust Expanded is expected to generate 0.65 times more return on investment than SPDR SP. However, First Trust Expanded is 1.54 times less risky than SPDR SP. It trades about 0.26 of its potential returns per unit of risk. SPDR SP Health is currently generating about -0.04 per unit of risk. If you would invest  2,952  in First Trust Expanded on May 3, 2025 and sell it today you would earn a total of  434.00  from holding First Trust Expanded or generate 14.7% return on investment over 90 days.

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

First Trust Expanded  vs.  SPDR SP Health

First Trust Expanded

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Expanded are ranked lower than 20 (%) 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.

SPDR SP Health

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, SPDR SP is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Trust and SPDR SP

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

The idea behind First Trust Expanded and SPDR SP Health 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.