Correlation Between First Trust and IShares SP

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

Diversification Opportunities for First Trust and IShares SP

0.75

Correlation Coefficient

First Trust  IShares SP

Poor diversification

The 3 months correlation between First and IShares is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Global and iShares SP GSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP GSCI 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 SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP GSCI has no effect on the direction of First Trust i.e., First Trust and IShares SP go up and down completely randomly.

Pair Corralation between First Trust and IShares SP

Given the investment horizon of 90 days First Trust Global is expected to generate 0.78 times more return on investment than IShares SP. However, First Trust Global is 1.28 times less risky than IShares SP. It trades about 0.16 of its potential returns per unit of risk. iShares SP GSCI is currently generating about 0.08 per unit of risk. If you would invest  2,390  in First Trust Global on December 28, 2024 and sell it today you would earn a total of  143.00  from holding First Trust Global or generate 5.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

First Trust Global  vs.  iShares SP GSCI

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 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental 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 SP GSCI

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP GSCI are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IShares SP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with First Trust and IShares SP

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

The idea behind First Trust Global and iShares SP GSCI 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.