Correlation Between First Trust and IShares Oil

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

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

Diversification Opportunities for First Trust and IShares Oil

0.29

Correlation Coefficient

First Trust  IShares Oil

Modest diversification

The 3 months correlation between First and IShares is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Exchange Traded and iShares Oil Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Oil Equipment and First Trust 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 First Trust Exchange Traded are associated (or correlated) with IShares Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Oil Equipment has no effect on the direction of First Trust i.e., First Trust and IShares Oil go up and down completely randomly.

Pair Corralation between First Trust and IShares Oil

Given the investment horizon of 90 days First Trust Exchange Traded is expected to under-perform the IShares Oil. But the etf apears to be less risky and, when comparing its historical volatility, First Trust Exchange Traded is 1.82 times less risky than IShares Oil. The etf trades about -0.16 of its potential returns per unit of risk. The iShares Oil Equipment is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,047  in iShares Oil Equipment on October 10, 2024 and sell it today you would earn a total of  1.00  from holding iShares Oil Equipment or generate 0.05% return on investment over 90 days.

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

First Trust Exchange Traded  vs.  iShares Oil Equipment

First Trust Exchange

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Exchange Traded has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares Oil Equipment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Oil Equipment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, IShares Oil is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Trust and IShares Oil

The main advantage of trading using opposite First Trust and IShares Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IShares Oil 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 IShares Oil will offset losses from the drop in IShares Oil's long position.

The idea behind First Trust Exchange Traded and iShares Oil Equipment 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.