Correlation Between First Trust and IShares Consumer

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

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

Diversification Opportunities for First Trust and IShares Consumer

0.72

Correlation Coefficient

First Trust  IShares Consumer

Poor diversification

The 3 months correlation between First and IShares is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Consumer and iShares Consumer Discretionary in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Consumer Dis 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 Consumer are associated (or correlated) with IShares Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Consumer Dis has no effect on the direction of First Trust i.e., First Trust and IShares Consumer go up and down completely randomly.

Pair Corralation between First Trust and IShares Consumer

Considering the 90-day investment horizon First Trust Consumer is expected to under-perform the IShares Consumer. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Consumer is 1.03 times less risky than IShares Consumer. The etf trades about -0.08 of its potential returns per unit of risk. The iShares Consumer Discretionary is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  9,760  in iShares Consumer Discretionary on November 28, 2024 and sell it today you would lose (109.00) from holding iShares Consumer Discretionary or give up 1.12% of portfolio value over 90 days.

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

First Trust Consumer  vs.  iShares Consumer Discretionary

First Trust Consumer

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Consumer has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, First Trust is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares Consumer Dis

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Consumer Discretionary has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares Consumer is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Trust and IShares Consumer

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

The idea behind First Trust Consumer and iShares Consumer Discretionary 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.