Correlation Between IShares Energy and First Trust

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

Diversification Opportunities for IShares Energy and First Trust

0.98

Correlation Coefficient

IShares Energy  First Trust

Almost no diversification

The 3 months correlation between IShares and First is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares Energy ETF and First Trust Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Energy and IShares Energy 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 Energy ETF 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 Energy has no effect on the direction of IShares Energy i.e., IShares Energy and First Trust go up and down completely randomly.

Pair Corralation between IShares Energy and First Trust

Considering the 90-day investment horizon iShares Energy ETF is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, iShares Energy ETF is 1.24 times less risky than First Trust. The etf trades about -0.21 of its potential returns per unit of risk. The First Trust Energy is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  1,730  in First Trust Energy on September 14, 2024 and sell it today you would lose (47.00) from holding First Trust Energy or give up 2.72% of portfolio value over 90 days.

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

iShares Energy ETF  vs.  First Trust Energy

iShares Energy ETF

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Energy ETF are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, IShares Energy is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

First Trust Energy

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Energy and First Trust

The main advantage of trading using opposite IShares Energy and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Energy 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 Energy ETF and First Trust Energy 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.