Correlation Between First Trust and IShares Latin

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

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

Diversification Opportunities for First Trust and IShares Latin

0.77

Correlation Coefficient

First Trust  IShares Latin

Poor diversification

The 3 months correlation between First and IShares is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Asia and iShares Latin America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Latin America 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 Asia are associated (or correlated) with IShares Latin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Latin America has no effect on the direction of First Trust i.e., First Trust and IShares Latin go up and down completely randomly.

Pair Corralation between First Trust and IShares Latin

Considering the 90-day investment horizon First Trust Asia is expected to generate 1.16 times more return on investment than IShares Latin. However, First Trust is 1.16 times more volatile than iShares Latin America. It trades about 0.02 of its potential returns per unit of risk. iShares Latin America is currently generating about -0.09 per unit of risk. If you would invest  2,615  in First Trust Asia on September 20, 2024 and sell it today you would earn a total of  120.00  from holding First Trust Asia or generate 4.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.79%
Values	Daily Returns

First Trust Asia  vs.  iShares Latin America

First Trust Asia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Asia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

iShares Latin America

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Latin America has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Etf's essential indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the Exchange Traded Fund stockholders.

Pair Trading with First Trust and IShares Latin

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

The idea behind First Trust Asia and iShares Latin America 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.