Correlation Between IShares Expanded and First Trust

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

Diversification Opportunities for IShares Expanded and First Trust

0.83

Correlation Coefficient

IShares Expanded  First Trust

Very poor diversification

The 3 months correlation between IShares and First is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding iShares Expanded Tech Software and First Trust Indxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Indxx and IShares Expanded 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 Expanded Tech Software 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 Indxx has no effect on the direction of IShares Expanded i.e., IShares Expanded and First Trust go up and down completely randomly.

Pair Corralation between IShares Expanded and First Trust

Considering the 90-day investment horizon IShares Expanded is expected to generate 1.88 times less return on investment than First Trust. In addition to that, IShares Expanded is 1.25 times more volatile than First Trust Indxx. It trades about 0.02 of its total potential returns per unit of risk. First Trust Indxx is currently generating about 0.05 per unit of volatility. If you would invest  3,892  in First Trust Indxx on October 26, 2024 and sell it today you would earn a total of  37.00  from holding First Trust Indxx or generate 0.95% return on investment over 90 days.

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

iShares Expanded Tech Software  vs.  First Trust Indxx

iShares Expanded Tech

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Expanded Tech Software are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, IShares Expanded showed solid returns over the last few months and may actually be approaching a breakup point.

First Trust Indxx

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Indxx are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, First Trust is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IShares Expanded and First Trust

The main advantage of trading using opposite IShares Expanded and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Expanded 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 Expanded Tech Software and First Trust Indxx 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.