Correlation Between IShares Treasury and First Trust

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

By analyzing existing cross correlation between iShares Treasury Bond and First Trust TCW, you can compare the effects of market volatilities on IShares Treasury and First Trust 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 IShares Treasury with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Treasury and First Trust.

Diversification Opportunities for IShares Treasury and First Trust

0.86

Correlation Coefficient

IShares Treasury  First Trust

Very poor diversification

The 3 months correlation between IShares and First is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding iShares Treasury Bond and First Trust TCW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust TCW and IShares Treasury 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 iShares Treasury Bond are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust TCW has no effect on the direction of IShares Treasury i.e., IShares Treasury and First Trust go up and down completely randomly.

Pair Corralation between IShares Treasury and First Trust

Given the investment horizon of 90 days IShares Treasury is expected to generate 1.13 times less return on investment than First Trust. But when comparing it to its historical volatility, iShares Treasury Bond is 1.12 times less risky than First Trust. It trades about 0.34 of its potential returns per unit of risk. First Trust TCW is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  4,294  in First Trust TCW on December 2, 2024 and sell it today you would earn a total of  106.00  from holding First Trust TCW or generate 2.47% return on investment over 90 days.

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

iShares Treasury Bond  vs.  First Trust TCW

iShares Treasury Bond

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Treasury Bond are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares Treasury is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

First Trust TCW

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust TCW 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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Treasury and First Trust

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

The idea behind iShares Treasury Bond and First Trust TCW 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.