Correlation Between IShares Global and First Trust

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

Diversification Opportunities for IShares Global and First Trust

0.68

Correlation Coefficient

IShares Global  First Trust

Poor diversification

The 3 months correlation between IShares and First is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding iShares Global Energy and First Trust Natural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Natural and IShares Global 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 Global Energy 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 Natural has no effect on the direction of IShares Global i.e., IShares Global and First Trust go up and down completely randomly.

Pair Corralation between IShares Global and First Trust

Considering the 90-day investment horizon IShares Global is expected to generate 1.43 times less return on investment than First Trust. But when comparing it to its historical volatility, iShares Global Energy is 1.32 times less risky than First Trust. It trades about 0.48 of its potential returns per unit of risk. First Trust Natural is currently generating about 0.52 of returns per unit of risk over similar time horizon. If you would invest  2,371  in First Trust Natural on October 27, 2024 and sell it today you would earn a total of  241.00  from holding First Trust Natural or generate 10.16% return on investment over 90 days.

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

iShares Global Energy  vs.  First Trust Natural

iShares Global Energy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, IShares Global is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

First Trust Natural

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Natural are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating fundamental indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with IShares Global and First Trust

The main advantage of trading using opposite IShares Global and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Global 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 Global Energy and First Trust Natural 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..