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 Horizon, 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

0.73

Correlation Coefficient

IShares Select  First Trust

Poor diversification

The 3 months correlation between IShares and First is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding iShares Select Dividend and First Trust Horizon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Horizon 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 Horizon 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 is expected to generate 1.43 times less return on investment than First Trust. In addition to that, IShares Select is 1.21 times more volatile than First Trust Horizon. It trades about 0.09 of its total potential returns per unit of risk. First Trust Horizon is currently generating about 0.15 per unit of volatility. If you would invest  3,726  in First Trust Horizon on December 19, 2024 and sell it today you would earn a total of  227.00  from holding First Trust Horizon or generate 6.09% return on investment over 90 days.

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

iShares Select Dividend  vs.  First Trust Horizon

iShares Select Dividend

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Select Dividend are ranked lower than 6 (%) 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 Horizon

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Horizon are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 Horizon 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.