Correlation Between First Trust and IShares MSCI

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

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

Diversification Opportunities for First Trust and IShares MSCI

-0.49

Correlation Coefficient

First Trust  IShares MSCI

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 Dorsey and iShares MSCI China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI China 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 Dorsey are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI China has no effect on the direction of First Trust i.e., First Trust and IShares MSCI go up and down completely randomly.

Pair Corralation between First Trust and IShares MSCI

Allowing for the 90-day total investment horizon First Trust Dorsey is expected to under-perform the IShares MSCI. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Dorsey is 1.46 times less risky than IShares MSCI. The etf trades about -0.08 of its potential returns per unit of risk. The iShares MSCI China is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  4,710  in iShares MSCI China on December 20, 2024 and sell it today you would earn a total of  1,121  from holding iShares MSCI China or generate 23.8% 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 Dorsey  vs.  iShares MSCI China

First Trust Dorsey

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Dorsey has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, First Trust is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares MSCI China

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI China are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, IShares MSCI demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Trust and IShares MSCI

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

The idea behind First Trust Dorsey and iShares MSCI China 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.