Correlation Between First Trust and KraneShares MSCI

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

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

Diversification Opportunities for First Trust and KraneShares MSCI

0.38

Correlation Coefficient

First Trust  KraneShares MSCI

Weak diversification

The 3 months correlation between First and KraneShares is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Emerging and KraneShares MSCI Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KraneShares MSCI Emerging 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 Emerging are associated (or correlated) with KraneShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KraneShares MSCI Emerging has no effect on the direction of First Trust i.e., First Trust and KraneShares MSCI go up and down completely randomly.

Pair Corralation between First Trust and KraneShares MSCI

Considering the 90-day investment horizon First Trust Emerging is expected to generate 0.98 times more return on investment than KraneShares MSCI. However, First Trust Emerging is 1.02 times less risky than KraneShares MSCI. It trades about 0.06 of its potential returns per unit of risk. KraneShares MSCI Emerging is currently generating about 0.01 per unit of risk. If you would invest  2,212  in First Trust Emerging on December 29, 2024 and sell it today you would earn a total of  80.00  from holding First Trust Emerging or generate 3.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

First Trust Emerging  vs.  KraneShares MSCI Emerging

First Trust Emerging

Risk-Adjusted Performance

Modest

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

KraneShares MSCI Emerging

Risk-Adjusted Performance

Very Weak

Over the last 90 days KraneShares MSCI Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, KraneShares MSCI is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and KraneShares MSCI

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

The idea behind First Trust Emerging and KraneShares MSCI Emerging 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.