Correlation Between First Trust and IShares Edge

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

Diversification Opportunities for First Trust and IShares Edge

0.91

Correlation Coefficient

First Trust  IShares Edge

Almost no diversification

The 3 months correlation between First and IShares is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Intl and iShares Edge MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Edge MSCI 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 Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Edge MSCI has no effect on the direction of First Trust i.e., First Trust and IShares Edge go up and down completely randomly.

Pair Corralation between First Trust and IShares Edge

Considering the 90-day investment horizon First Trust Intl is expected to under-perform the IShares Edge. In addition to that, First Trust is 1.1 times more volatile than iShares Edge MSCI. It trades about -0.05 of its total potential returns per unit of risk. iShares Edge MSCI is currently generating about 0.07 per unit of volatility. If you would invest  2,792  in iShares Edge MSCI on September 17, 2024 and sell it today you would earn a total of  20.00  from holding iShares Edge MSCI or generate 0.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.24%
Values	Daily Returns

First Trust Intl  vs.  iShares Edge MSCI

First Trust Intl

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Intl has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, First Trust is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares Edge MSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Edge MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, IShares Edge is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with First Trust and IShares Edge

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

The idea behind First Trust Intl and iShares Edge MSCI 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.