Correlation Between First Trust and IShares International

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

Diversification Opportunities for First Trust and IShares International

0.95

Correlation Coefficient

First Trust  IShares International

Almost no diversification

The 3 months correlation between First and IShares is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Intl and iShares International Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares International 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 IShares International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares International has no effect on the direction of First Trust i.e., First Trust and IShares International go up and down completely randomly.

Pair Corralation between First Trust and IShares International

Considering the 90-day investment horizon First Trust is expected to generate 2.04 times less return on investment than IShares International. But when comparing it to its historical volatility, First Trust Intl is 1.2 times less risky than IShares International. It trades about 0.19 of its potential returns per unit of risk. iShares International Select is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  2,723  in iShares International Select on December 27, 2024 and sell it today you would earn a total of  399.00  from holding iShares International Select or generate 14.65% return on investment over 90 days.

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

First Trust Intl  vs.  iShares International Select

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.

iShares International

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares International Select are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, IShares International showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and IShares International

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

The idea behind First Trust Intl and iShares International Select 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.