Correlation Between First Trust and IShares Emergent

Can any of the company-specific risk be diversified away by investing in both First Trust and IShares Emergent 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 IShares Emergent 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 iShares Emergent Food, you can compare the effects of market volatilities on First Trust and IShares Emergent 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 IShares Emergent. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares Emergent.

Diversification Opportunities for First Trust and IShares Emergent

0.61

Correlation Coefficient

First Trust  IShares Emergent

Poor diversification

The 3 months correlation between First and IShares is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and iShares Emergent Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Emergent Food 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 IShares Emergent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Emergent Food has no effect on the direction of First Trust i.e., First Trust and IShares Emergent go up and down completely randomly.

Pair Corralation between First Trust and IShares Emergent

Given the investment horizon of 90 days First Trust Exchange Traded is expected to generate 0.73 times more return on investment than IShares Emergent. However, First Trust Exchange Traded is 1.36 times less risky than IShares Emergent. It trades about 0.13 of its potential returns per unit of risk. iShares Emergent Food is currently generating about 0.04 per unit of risk. If you would invest  1,333  in First Trust Exchange Traded on December 29, 2024 and sell it today you would earn a total of  79.00  from holding First Trust Exchange Traded or generate 5.93% 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.  iShares Emergent Food

First Trust Exchange

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Exchange Traded are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, First Trust is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

iShares Emergent Food

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Emergent Food are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, IShares Emergent is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with First Trust and IShares Emergent

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

The idea behind First Trust Exchange Traded and iShares Emergent Food 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.