Correlation Between IShares Global and First Trust

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

Diversification Opportunities for IShares Global and First Trust

-0.09

Correlation Coefficient

IShares Global  First Trust

Good diversification

The 3 months correlation between IShares and First is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding iShares Global Water and First Trust AlphaDEX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust AlphaDEX and IShares Global 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 Global Water 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 AlphaDEX has no effect on the direction of IShares Global i.e., IShares Global and First Trust go up and down completely randomly.

Pair Corralation between IShares Global and First Trust

Assuming the 90 days trading horizon iShares Global Water is expected to under-perform the First Trust. In addition to that, IShares Global is 1.88 times more volatile than First Trust AlphaDEX. It trades about -0.11 of its total potential returns per unit of risk. First Trust AlphaDEX is currently generating about -0.02 per unit of volatility. If you would invest  4,186  in First Trust AlphaDEX on December 2, 2024 and sell it today you would lose (46.00) from holding First Trust AlphaDEX or give up 1.1% of portfolio value over 90 days.

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

iShares Global Water  vs.  First Trust AlphaDEX

iShares Global Water

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Global Water has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's basic 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 AlphaDEX

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust AlphaDEX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical 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 Global and First Trust

The main advantage of trading using opposite IShares Global and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Global 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 Global Water and First Trust AlphaDEX 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.