Correlation Between First Trust and IShares Global

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

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

Diversification Opportunities for First Trust and IShares Global

0.58

Correlation Coefficient

First Trust  IShares Global

Very weak diversification

The 3 months correlation between First and IShares is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Energy and iShares Global Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Energy 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 Energy are associated (or correlated) with IShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global Energy has no effect on the direction of First Trust i.e., First Trust and IShares Global go up and down completely randomly.

Pair Corralation between First Trust and IShares Global

Considering the 90-day investment horizon First Trust is expected to generate 4.22 times less return on investment than IShares Global. In addition to that, First Trust is 1.53 times more volatile than iShares Global Energy. It trades about 0.03 of its total potential returns per unit of risk. iShares Global Energy is currently generating about 0.18 per unit of volatility. If you would invest  3,769  in iShares Global Energy on December 28, 2024 and sell it today you would earn a total of  430.00  from holding iShares Global Energy or generate 11.41% return on investment over 90 days.

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

First Trust Energy  vs.  iShares Global Energy

First Trust Energy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

iShares Global Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global Energy are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, IShares Global may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with First Trust and IShares Global

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

The idea behind First Trust Energy and iShares Global Energy 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.