Correlation Between First Trust and IShares Morningstar

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

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

Diversification Opportunities for First Trust and IShares Morningstar

0.65

Correlation Coefficient

First Trust  IShares Morningstar

Poor diversification

The 3 months correlation between First and IShares is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Value and iShares Morningstar Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Morningstar Value 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 Value are associated (or correlated) with IShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Morningstar Value has no effect on the direction of First Trust i.e., First Trust and IShares Morningstar go up and down completely randomly.

Pair Corralation between First Trust and IShares Morningstar

Considering the 90-day investment horizon First Trust Value is expected to generate 0.95 times more return on investment than IShares Morningstar. However, First Trust Value is 1.06 times less risky than IShares Morningstar. It trades about 0.06 of its potential returns per unit of risk. iShares Morningstar Value is currently generating about 0.0 per unit of risk. If you would invest  4,348  in First Trust Value on December 28, 2024 and sell it today you would earn a total of  102.00  from holding First Trust Value or generate 2.35% return on investment over 90 days.

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

First Trust Value  vs.  iShares Morningstar Value

First Trust Value

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Value are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares Morningstar Value

Risk-Adjusted Performance

Weak

Over the last 90 days iShares Morningstar Value has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, IShares Morningstar 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 Morningstar

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

The idea behind First Trust Value and iShares Morningstar Value 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.