Correlation Between IShares ESG and First Trust

Can any of the company-specific risk be diversified away by investing in both IShares ESG 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 ESG 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 ESG Aware and First Trust NASDAQ 100, you can compare the effects of market volatilities on IShares ESG 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 ESG with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and First Trust.

Diversification Opportunities for IShares ESG and First Trust

0.63

Correlation Coefficient

IShares ESG  First Trust

Poor diversification

The 3 months correlation between IShares and First is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aware and First Trust NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NASDAQ and IShares ESG 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 ESG Aware 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 NASDAQ has no effect on the direction of IShares ESG i.e., IShares ESG and First Trust go up and down completely randomly.

Pair Corralation between IShares ESG and First Trust

Given the investment horizon of 90 days iShares ESG Aware is expected to generate 1.06 times more return on investment than First Trust. However, IShares ESG is 1.06 times more volatile than First Trust NASDAQ 100. It trades about 0.1 of its potential returns per unit of risk. First Trust NASDAQ 100 is currently generating about 0.06 per unit of risk. If you would invest  8,512  in iShares ESG Aware on December 5, 2024 and sell it today you would earn a total of  4,092  from holding iShares ESG Aware or generate 48.07% return on investment over 90 days.

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

iShares ESG Aware  vs.  First Trust NASDAQ 100

iShares ESG Aware

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares ESG Aware has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, IShares ESG is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

First Trust NASDAQ

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust NASDAQ 100 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, First Trust is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares ESG and First Trust

The main advantage of trading using opposite IShares ESG and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares ESG 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 ESG Aware and First Trust NASDAQ 100 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.