Correlation Between IShares Core and First Trust

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

Diversification Opportunities for IShares Core and First Trust

0.78

Correlation Coefficient

IShares Core  First Trust

Poor diversification

The 3 months correlation between IShares and First is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and First Trust SMID in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust SMID and IShares Core 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 Core SP 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 SMID has no effect on the direction of IShares Core i.e., IShares Core and First Trust go up and down completely randomly.

Pair Corralation between IShares Core and First Trust

Considering the 90-day investment horizon iShares Core SP is expected to under-perform the First Trust. In addition to that, IShares Core is 1.19 times more volatile than First Trust SMID. It trades about -0.15 of its total potential returns per unit of risk. First Trust SMID is currently generating about -0.14 per unit of volatility. If you would invest  3,813  in First Trust SMID on November 28, 2024 and sell it today you would lose (243.00) from holding First Trust SMID or give up 6.37% of portfolio value over 90 days.

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

iShares Core SP  vs.  First Trust SMID

iShares Core SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Core SP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Etf's forward-looking indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the Etf traders.

First Trust SMID

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust SMID has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with IShares Core and First Trust

The main advantage of trading using opposite IShares Core and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core 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 Core SP and First Trust SMID 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.