Correlation Between First Trust and IShares JP

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

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

Diversification Opportunities for First Trust and IShares JP

-0.49

Correlation Coefficient

First Trust  IShares JP

Very good diversification

The 3 months correlation between First and IShares is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding First Trust BuyWrite and iShares JP Morgan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares JP Morgan 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 BuyWrite are associated (or correlated) with IShares JP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares JP Morgan has no effect on the direction of First Trust i.e., First Trust and IShares JP go up and down completely randomly.

Pair Corralation between First Trust and IShares JP

Given the investment horizon of 90 days First Trust BuyWrite is expected to generate 2.47 times more return on investment than IShares JP. However, First Trust is 2.47 times more volatile than iShares JP Morgan. It trades about 0.1 of its potential returns per unit of risk. iShares JP Morgan is currently generating about -0.05 per unit of risk. If you would invest  2,322  in First Trust BuyWrite on October 20, 2024 and sell it today you would earn a total of  32.00  from holding First Trust BuyWrite or generate 1.38% return on investment over 90 days.

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

First Trust BuyWrite  vs.  iShares JP Morgan

First Trust BuyWrite

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust BuyWrite are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, First Trust is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

iShares JP Morgan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares JP Morgan has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, IShares JP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and IShares JP

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

The idea behind First Trust BuyWrite and iShares JP Morgan 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.