Correlation Between First Trust and IShares Core

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

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

Diversification Opportunities for First Trust and IShares Core

1.0

Correlation Coefficient

First Trust  IShares Core

No risk reduction

The 3 months correlation between First and IShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding First Trust TCW and iShares Core Total in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core Total 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 TCW are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core Total has no effect on the direction of First Trust i.e., First Trust and IShares Core go up and down completely randomly.

Pair Corralation between First Trust and IShares Core

Given the investment horizon of 90 days First Trust TCW is expected to generate 1.22 times more return on investment than IShares Core. However, First Trust is 1.22 times more volatile than iShares Core Total. It trades about 0.21 of its potential returns per unit of risk. iShares Core Total is currently generating about 0.23 per unit of risk. If you would invest  4,271  in First Trust TCW on December 3, 2024 and sell it today you would earn a total of  129.00  from holding First Trust TCW or generate 3.02% 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 TCW  vs.  iShares Core Total

First Trust TCW

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust TCW are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares Core Total

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core Total are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and IShares Core

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

The idea behind First Trust TCW and iShares Core Total 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.