Correlation Between IShares Environmental and First Trust

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

Diversification Opportunities for IShares Environmental and First Trust

0.47

Correlation Coefficient

IShares Environmental  First Trust

Very weak diversification

The 3 months correlation between IShares and First is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding iShares Environmental Infrastr 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 IShares Environmental 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 Environmental Infrastructure 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 IShares Environmental i.e., IShares Environmental and First Trust go up and down completely randomly.

Pair Corralation between IShares Environmental and First Trust

Given the investment horizon of 90 days iShares Environmental Infrastructure is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, iShares Environmental Infrastructure is 1.17 times less risky than First Trust. The etf trades about -0.4 of its potential returns per unit of risk. The First Trust Global is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  1,574  in First Trust Global on October 6, 2024 and sell it today you would lose (54.00) from holding First Trust Global or give up 3.43% of portfolio value over 90 days.

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

iShares Environmental Infrastr  vs.  First Trust Global

iShares Environmental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Environmental Infrastructure has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

First Trust Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Etf's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the ETF investors.

Pair Trading with IShares Environmental and First Trust

The main advantage of trading using opposite IShares Environmental and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Environmental 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 Environmental Infrastructure 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.