Correlation Between First Trust and IShares Oil

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

By analyzing existing cross correlation between First Trust Natural and iShares Oil Gas, you can compare the effects of market volatilities on First Trust and IShares Oil 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 Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares Oil.

Diversification Opportunities for First Trust and IShares Oil

0.85

Correlation Coefficient

First Trust  IShares Oil

Very poor diversification

The 3 months correlation between First and IShares is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Natural and iShares Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Oil Gas 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 Natural are associated (or correlated) with IShares Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Oil Gas has no effect on the direction of First Trust i.e., First Trust and IShares Oil go up and down completely randomly.

Pair Corralation between First Trust and IShares Oil

Considering the 90-day investment horizon First Trust Natural is expected to generate 1.06 times more return on investment than IShares Oil. However, First Trust is 1.06 times more volatile than iShares Oil Gas. It trades about 0.12 of its potential returns per unit of risk. iShares Oil Gas is currently generating about 0.09 per unit of risk. If you would invest  2,365  in First Trust Natural on October 26, 2024 and sell it today you would earn a total of  247.00  from holding First Trust Natural or generate 10.44% return on investment over 90 days.

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

First Trust Natural  vs.  iShares Oil Gas

First Trust Natural

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Natural are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating fundamental indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in February 2025.

iShares Oil Gas

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Oil Gas are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, IShares Oil may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with First Trust and IShares Oil

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

The idea behind First Trust Natural and iShares Oil Gas 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.