Correlation Between IShares Short and First Trust

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

Diversification Opportunities for IShares Short and First Trust

0.92

Correlation Coefficient

IShares Short  First Trust

Almost no diversification

The 3 months correlation between IShares and First is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding iShares Short Maturity and First Trust Ultra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Ultra and IShares Short 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 Short Maturity 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 Ultra has no effect on the direction of IShares Short i.e., IShares Short and First Trust go up and down completely randomly.

Pair Corralation between IShares Short and First Trust

Given the investment horizon of 90 days iShares Short Maturity is expected to generate 1.44 times more return on investment than First Trust. However, IShares Short is 1.44 times more volatile than First Trust Ultra. It trades about 0.25 of its potential returns per unit of risk. First Trust Ultra is currently generating about 0.16 per unit of risk. If you would invest  5,003  in iShares Short Maturity on December 27, 2024 and sell it today you would earn a total of  71.00  from holding iShares Short Maturity or generate 1.42% return on investment over 90 days.

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

iShares Short Maturity  vs.  First Trust Ultra

iShares Short Maturity

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Short Maturity are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, IShares Short is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

First Trust Ultra

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Ultra are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, First Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Short and First Trust

The main advantage of trading using opposite IShares Short and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Short 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 Short Maturity and First Trust Ultra 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.