Correlation Between IShares Consumer and First Trust

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

Diversification Opportunities for IShares Consumer and First Trust

0.56

Correlation Coefficient

IShares Consumer  First Trust

Very weak diversification

The 3 months correlation between IShares and First is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding iShares Consumer Staples and First Trust Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Consumer and IShares Consumer 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 Consumer Staples 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 Consumer has no effect on the direction of IShares Consumer i.e., IShares Consumer and First Trust go up and down completely randomly.

Pair Corralation between IShares Consumer and First Trust

Considering the 90-day investment horizon IShares Consumer is expected to generate 2.28 times less return on investment than First Trust. But when comparing it to its historical volatility, iShares Consumer Staples is 1.06 times less risky than First Trust. It trades about 0.01 of its potential returns per unit of risk. First Trust Consumer is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  6,117  in First Trust Consumer on September 20, 2024 and sell it today you would earn a total of  386.00  from holding First Trust Consumer or generate 6.31% return on investment over 90 days.

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

iShares Consumer Staples  vs.  First Trust Consumer

iShares Consumer Staples

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Consumer Staples has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, IShares Consumer is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

First Trust Consumer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Consumer has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, First Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares Consumer and First Trust

The main advantage of trading using opposite IShares Consumer and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Consumer 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 Consumer Staples and First Trust Consumer 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.