Correlation Between First Trust and IShares Commodity

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

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

Diversification Opportunities for First Trust and IShares Commodity

0.57

Correlation Coefficient

First Trust  IShares Commodity

Very weak diversification

The 3 months correlation between First and IShares is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Global and iShares Commodity Curve in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Commodity Curve 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 Global are associated (or correlated) with IShares Commodity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Commodity Curve has no effect on the direction of First Trust i.e., First Trust and IShares Commodity go up and down completely randomly.

Pair Corralation between First Trust and IShares Commodity

Given the investment horizon of 90 days First Trust Global is expected to generate 1.05 times more return on investment than IShares Commodity. However, First Trust is 1.05 times more volatile than iShares Commodity Curve. It trades about 0.17 of its potential returns per unit of risk. iShares Commodity Curve is currently generating about 0.03 per unit of risk. If you would invest  2,377  in First Trust Global on December 28, 2024 and sell it today you would earn a total of  155.00  from holding First Trust Global or generate 6.52% return on investment over 90 days.

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

First Trust Global  vs.  iShares Commodity Curve

First Trust Global

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Global are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in April 2025.

iShares Commodity Curve

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Commodity Curve are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IShares Commodity is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with First Trust and IShares Commodity

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

The idea behind First Trust Global and iShares Commodity Curve 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.