Correlation Between ISEM and First Trust

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

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

Diversification Opportunities for ISEM and First Trust

0.0

Correlation Coefficient

ISEM  First Trust

Pay attention - limited upside

The 3 months correlation between ISEM and First is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding ISEM and First Trust International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust International and ISEM 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 ISEM 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 International has no effect on the direction of ISEM i.e., ISEM and First Trust go up and down completely randomly.

Pair Corralation between ISEM and First Trust

If you would invest  4,940  in First Trust International on December 17, 2024 and sell it today you would earn a total of  15.00  from holding First Trust International or generate 0.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

ISEM  vs.  First Trust International

ISEM

Risk-Adjusted Performance

Very Weak

Over the last 90 days ISEM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, ISEM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

First Trust International

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust International 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 current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with ISEM and First Trust

The main advantage of trading using opposite ISEM and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ISEM 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 ISEM and First Trust International 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.