Correlation Between First Trust and IShares Trust

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

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

Diversification Opportunities for First Trust and IShares Trust

0.44

Correlation Coefficient

First Trust  IShares Trust

Very weak diversification

The 3 months correlation between First and IShares is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Developed and iShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Trust 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 Developed are associated (or correlated) with IShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Trust has no effect on the direction of First Trust i.e., First Trust and IShares Trust go up and down completely randomly.

Pair Corralation between First Trust and IShares Trust

Assuming the 90 days trading horizon First Trust Developed is expected to generate 0.23 times more return on investment than IShares Trust. However, First Trust Developed is 4.27 times less risky than IShares Trust. It trades about 0.22 of its potential returns per unit of risk. iShares Trust is currently generating about -0.22 per unit of risk. If you would invest  89,577  in First Trust Developed on September 26, 2024 and sell it today you would earn a total of  1,590  from holding First Trust Developed or generate 1.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	85.71%
Values	Daily Returns

First Trust Developed  vs.  iShares Trust

First Trust Developed

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Developed are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, First Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

iShares Trust

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, IShares Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Trust and IShares Trust

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

The idea behind First Trust Developed and iShares Trust 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.