Correlation Between IShares Industrials and First Trust

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

Diversification Opportunities for IShares Industrials and First Trust

0.77

Correlation Coefficient

IShares Industrials  First Trust

Poor diversification

The 3 months correlation between IShares and First is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding iShares Industrials ETF and First Trust RBA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust RBA and IShares Industrials 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 Industrials 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 RBA has no effect on the direction of IShares Industrials i.e., IShares Industrials and First Trust go up and down completely randomly.

Pair Corralation between IShares Industrials and First Trust

Considering the 90-day investment horizon iShares Industrials ETF is expected to generate 0.63 times more return on investment than First Trust. However, iShares Industrials ETF is 1.59 times less risky than First Trust. It trades about -0.03 of its potential returns per unit of risk. First Trust RBA is currently generating about -0.09 per unit of risk. If you would invest  13,480  in iShares Industrials ETF on December 27, 2024 and sell it today you would lose (246.00) from holding iShares Industrials ETF or give up 1.82% of portfolio value over 90 days.

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

iShares Industrials ETF  vs.  First Trust RBA

iShares Industrials ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Industrials ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, IShares Industrials is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

First Trust RBA

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust RBA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest inconsistent performance, the Etf's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Pair Trading with IShares Industrials and First Trust

The main advantage of trading using opposite IShares Industrials and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Industrials 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 Industrials ETF and First Trust RBA 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.