Correlation Between First Trust and Xtrackers MSCI

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

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

Diversification Opportunities for First Trust and Xtrackers MSCI

0.65

Correlation Coefficient

First Trust  Xtrackers MSCI

Poor diversification

The 3 months correlation between First and Xtrackers is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Intl and Xtrackers MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI EAFE 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 Intl are associated (or correlated) with Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI EAFE has no effect on the direction of First Trust i.e., First Trust and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between First Trust and Xtrackers MSCI

Considering the 90-day investment horizon First Trust is expected to generate 1.93 times less return on investment than Xtrackers MSCI. But when comparing it to its historical volatility, First Trust Intl is 1.2 times less risky than Xtrackers MSCI. It trades about 0.18 of its potential returns per unit of risk. Xtrackers MSCI EAFE is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  2,407  in Xtrackers MSCI EAFE on December 28, 2024 and sell it today you would earn a total of  326.00  from holding Xtrackers MSCI EAFE or generate 13.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

First Trust Intl  vs.  Xtrackers MSCI EAFE

First Trust Intl

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Intl are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain forward indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Xtrackers MSCI EAFE

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI EAFE are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal technical and fundamental indicators, Xtrackers MSCI reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and Xtrackers MSCI

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

The idea behind First Trust Intl and Xtrackers MSCI EAFE 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.