Correlation Between First Trust and IShares Core

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

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

Diversification Opportunities for First Trust and IShares Core

0.88

Correlation Coefficient

First Trust  IShares Core

Very poor diversification

The 3 months correlation between First and IShares is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Global and iShares Core Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core Income and First Trust 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 First Trust Global are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core Income has no effect on the direction of First Trust i.e., First Trust and IShares Core go up and down completely randomly.

Pair Corralation between First Trust and IShares Core

Assuming the 90 days trading horizon First Trust Global is expected to generate 1.11 times more return on investment than IShares Core. However, First Trust is 1.11 times more volatile than iShares Core Income. It trades about 0.08 of its potential returns per unit of risk. iShares Core Income is currently generating about 0.06 per unit of risk. If you would invest  1,738  in First Trust Global on December 30, 2024 and sell it today you would earn a total of  29.00  from holding First Trust Global or generate 1.67% return on investment over 90 days.

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

First Trust Global  vs.  iShares Core Income

First Trust Global

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Global are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares Core Income

Risk-Adjusted Performance

Modest

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

Pair Trading with First Trust and IShares Core

The main advantage of trading using opposite First Trust and IShares Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IShares Core 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 IShares Core will offset losses from the drop in IShares Core's long position.

The idea behind First Trust Global and iShares Core Income 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.