Correlation Between IShares Trust and First Trust

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

Diversification Opportunities for IShares Trust and First Trust

0.98

Correlation Coefficient

IShares Trust  First Trust

Almost no diversification

The 3 months correlation between IShares and First is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and First Trust TCW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust TCW and IShares 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 iShares Trust 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 TCW has no effect on the direction of IShares Trust i.e., IShares Trust and First Trust go up and down completely randomly.

Pair Corralation between IShares Trust and First Trust

Given the investment horizon of 90 days iShares Trust is expected to generate 0.83 times more return on investment than First Trust. However, iShares Trust is 1.21 times less risky than First Trust. It trades about 0.05 of its potential returns per unit of risk. First Trust TCW is currently generating about 0.04 per unit of risk. If you would invest  4,253  in iShares Trust on November 19, 2024 and sell it today you would earn a total of  36.00  from holding iShares Trust or generate 0.85% return on investment over 90 days.

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

iShares Trust   vs.  First Trust TCW

iShares Trust

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Trust TCW

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust TCW are ranked lower than 2 (%) 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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Trust and First Trust

The main advantage of trading using opposite IShares Trust and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Trust 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 Trust and First Trust TCW 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.