Correlation Between IShares Dividend and First Trust

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

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

Diversification Opportunities for IShares Dividend and First Trust

0.83

Correlation Coefficient

IShares Dividend  First Trust

Very poor diversification

The 3 months correlation between IShares and First is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding iShares Dividend Growers and First Trust Morningstar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Morningstar and IShares Dividend 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 iShares Dividend Growers 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 Morningstar has no effect on the direction of IShares Dividend i.e., IShares Dividend and First Trust go up and down completely randomly.

Pair Corralation between IShares Dividend and First Trust

Assuming the 90 days trading horizon iShares Dividend Growers is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, iShares Dividend Growers is 1.14 times less risky than First Trust. The etf trades about -0.54 of its potential returns per unit of risk. The First Trust Morningstar is currently generating about -0.37 of returns per unit of risk over similar time horizon. If you would invest  3,555  in First Trust Morningstar on October 9, 2024 and sell it today you would lose (184.00) from holding First Trust Morningstar or give up 5.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.74%
Values	Daily Returns

iShares Dividend Growers  vs.  First Trust Morningstar

iShares Dividend Growers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Dividend Growers has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

First Trust Morningstar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Morningstar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Dividend and First Trust

The main advantage of trading using opposite IShares Dividend and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Dividend 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 iShares Dividend Growers and First Trust Morningstar 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.