Correlation Between FlexShares International and First Trust

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

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

Diversification Opportunities for FlexShares International and First Trust

0.5

Correlation Coefficient

FlexShares International  First Trust

Very weak diversification

The 3 months correlation between FlexShares and First is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares International Quali and First Trust SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust SP and FlexShares International 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 FlexShares International Quality 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 SP has no effect on the direction of FlexShares International i.e., FlexShares International and First Trust go up and down completely randomly.

Pair Corralation between FlexShares International and First Trust

Given the investment horizon of 90 days FlexShares International Quality is expected to generate 0.81 times more return on investment than First Trust. However, FlexShares International Quality is 1.23 times less risky than First Trust. It trades about 0.14 of its potential returns per unit of risk. First Trust SP is currently generating about 0.0 per unit of risk. If you would invest  2,751  in FlexShares International Quality on December 22, 2024 and sell it today you would earn a total of  202.00  from holding FlexShares International Quality or generate 7.34% return on investment over 90 days.

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

FlexShares International Quali  vs.  First Trust SP

FlexShares International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares International Quality are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, FlexShares International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

First Trust SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust SP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, First Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with FlexShares International and First Trust

The main advantage of trading using opposite FlexShares International and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares International 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 FlexShares International Quality and First Trust SP 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.