Correlation Between KraneShares CSI and First Trust

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

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

Diversification Opportunities for KraneShares CSI and First Trust

0.96

Correlation Coefficient

KraneShares CSI  First Trust

Almost no diversification

The 3 months correlation between KraneShares and First is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding KraneShares CSI China and First Trust China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust China and KraneShares CSI 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 KraneShares CSI China 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 China has no effect on the direction of KraneShares CSI i.e., KraneShares CSI and First Trust go up and down completely randomly.

Pair Corralation between KraneShares CSI and First Trust

Given the investment horizon of 90 days KraneShares CSI China is expected to generate 1.18 times more return on investment than First Trust. However, KraneShares CSI is 1.18 times more volatile than First Trust China. It trades about 0.08 of its potential returns per unit of risk. First Trust China is currently generating about 0.07 per unit of risk. If you would invest  2,587  in KraneShares CSI China on September 20, 2024 and sell it today you would earn a total of  404.00  from holding KraneShares CSI China or generate 15.62% return on investment over 90 days.

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

KraneShares CSI China  vs.  First Trust China

KraneShares CSI China

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KraneShares CSI China are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent technical and fundamental indicators, KraneShares CSI sustained solid returns over the last few months and may actually be approaching a breakup point.

First Trust China

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust China are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, First Trust sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KraneShares CSI and First Trust

The main advantage of trading using opposite KraneShares CSI and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KraneShares CSI 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 KraneShares CSI China and First Trust China 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.