Correlation Between IShares Select and First Trust

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

Diversification Opportunities for IShares Select and First Trust

0.85

Correlation Coefficient

IShares Select  First Trust

Very poor diversification

The 3 months correlation between IShares and First is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding iShares Select Dividend and First Trust Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Value and IShares Select 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 Select Dividend 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 Value has no effect on the direction of IShares Select i.e., IShares Select and First Trust go up and down completely randomly.

Pair Corralation between IShares Select and First Trust

Considering the 90-day investment horizon iShares Select Dividend is expected to generate 1.1 times more return on investment than First Trust. However, IShares Select is 1.1 times more volatile than First Trust Value. It trades about 0.07 of its potential returns per unit of risk. First Trust Value is currently generating about 0.06 per unit of risk. If you would invest  12,990  in iShares Select Dividend on December 28, 2024 and sell it today you would earn a total of  393.00  from holding iShares Select Dividend or generate 3.03% return on investment over 90 days.

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

iShares Select Dividend  vs.  First Trust Value

iShares Select Dividend

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Select Dividend are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, IShares Select is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Trust Value

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Value are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Select and First Trust

The main advantage of trading using opposite IShares Select and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Select 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 Select Dividend and First Trust Value 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.