Correlation Between IShares 25 and First Trust

Can any of the company-specific risk be diversified away by investing in both IShares 25 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 25 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 25 Year and First Trust Long, you can compare the effects of market volatilities on IShares 25 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 25 with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares 25 and First Trust.

Diversification Opportunities for IShares 25 and First Trust

0.98

Correlation Coefficient

IShares 25  First Trust

Almost no diversification

The 3 months correlation between IShares and First is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares 25 Year and First Trust Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Long and IShares 25 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 25 Year 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 Long has no effect on the direction of IShares 25 i.e., IShares 25 and First Trust go up and down completely randomly.

Pair Corralation between IShares 25 and First Trust

Given the investment horizon of 90 days iShares 25 Year is expected to generate 3.26 times more return on investment than First Trust. However, IShares 25 is 3.26 times more volatile than First Trust Long. It trades about 0.05 of its potential returns per unit of risk. First Trust Long is currently generating about 0.1 per unit of risk. If you would invest  1,035  in iShares 25 Year on September 19, 2024 and sell it today you would earn a total of  17.00  from holding iShares 25 Year or generate 1.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

iShares 25 Year  vs.  First Trust Long

iShares 25 Year

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares 25 Year has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

First Trust Long

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Long 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 current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares 25 and First Trust

The main advantage of trading using opposite IShares 25 and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares 25 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 25 Year and First Trust Long 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.