Correlation Between First Trust and IShares Regional

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

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

Diversification Opportunities for First Trust and IShares Regional

0.88

Correlation Coefficient

First Trust  IShares Regional

Very poor diversification

The 3 months correlation between First and IShares is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Nasdaq and iShares Regional Banks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Regional Banks 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 Nasdaq are associated (or correlated) with IShares Regional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Regional Banks has no effect on the direction of First Trust i.e., First Trust and IShares Regional go up and down completely randomly.

Pair Corralation between First Trust and IShares Regional

Given the investment horizon of 90 days First Trust Nasdaq is expected to generate 0.98 times more return on investment than IShares Regional. However, First Trust Nasdaq is 1.03 times less risky than IShares Regional. It trades about -0.08 of its potential returns per unit of risk. iShares Regional Banks is currently generating about -0.14 per unit of risk. If you would invest  3,472  in First Trust Nasdaq on November 28, 2024 and sell it today you would lose (222.00) from holding First Trust Nasdaq or give up 6.39% of portfolio value over 90 days.

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

First Trust Nasdaq  vs.  iShares Regional Banks

First Trust Nasdaq

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Nasdaq has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

iShares Regional Banks

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Regional Banks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with First Trust and IShares Regional

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

The idea behind First Trust Nasdaq and iShares Regional Banks 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.