Correlation Between IPath Bloomberg and First Trust

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

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

Diversification Opportunities for IPath Bloomberg and First Trust

0.97

Correlation Coefficient

IPath Bloomberg  First Trust

Almost no diversification

The 3 months correlation between IPath and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iPath Bloomberg Commodity and First Trust Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Global and IPath Bloomberg 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 iPath Bloomberg Commodity 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 Global has no effect on the direction of IPath Bloomberg i.e., IPath Bloomberg and First Trust go up and down completely randomly.

Pair Corralation between IPath Bloomberg and First Trust

Considering the 90-day investment horizon iPath Bloomberg Commodity is expected to generate 1.25 times more return on investment than First Trust. However, IPath Bloomberg is 1.25 times more volatile than First Trust Global. It trades about 0.19 of its potential returns per unit of risk. First Trust Global is currently generating about 0.16 per unit of risk. If you would invest  3,205  in iPath Bloomberg Commodity on December 28, 2024 and sell it today you would earn a total of  290.00  from holding iPath Bloomberg Commodity or generate 9.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

iPath Bloomberg Commodity  vs.  First Trust Global

iPath Bloomberg Commodity

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iPath Bloomberg Commodity are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward-looking indicators, IPath Bloomberg may actually be approaching a critical reversion point that can send shares even higher in April 2025.

First Trust Global

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Global are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, First Trust is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IPath Bloomberg and First Trust

The main advantage of trading using opposite IPath Bloomberg and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IPath Bloomberg 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 iPath Bloomberg Commodity and First Trust Global 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.

Check out your portfolio center.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.