Correlation Between First Trust and IShares Preferred

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

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

Diversification Opportunities for First Trust and IShares Preferred

0.64

Correlation Coefficient

First Trust  IShares Preferred

Poor diversification

The 3 months correlation between First and IShares is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Preferred and iShares Preferred and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Preferred 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 Preferred are associated (or correlated) with IShares Preferred. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Preferred has no effect on the direction of First Trust i.e., First Trust and IShares Preferred go up and down completely randomly.

Pair Corralation between First Trust and IShares Preferred

Considering the 90-day investment horizon First Trust Preferred is expected to generate 0.73 times more return on investment than IShares Preferred. However, First Trust Preferred is 1.38 times less risky than IShares Preferred. It trades about 0.06 of its potential returns per unit of risk. iShares Preferred and is currently generating about 0.03 per unit of risk. If you would invest  1,570  in First Trust Preferred on November 19, 2024 and sell it today you would earn a total of  215.00  from holding First Trust Preferred or generate 13.69% return on investment over 90 days.

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

First Trust Preferred  vs.  iShares Preferred and

First Trust Preferred

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Preferred 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares Preferred

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Preferred and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, IShares Preferred is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with First Trust and IShares Preferred

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

The idea behind First Trust Preferred and iShares Preferred and 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.