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 Treasury and First Trust Enhanced, 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

0.99

Correlation Coefficient

IShares Short  First Trust

No risk reduction

The 3 months correlation between IShares and First is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares Short Treasury and First Trust Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Enhanced 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 Treasury 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 Enhanced 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

Considering the 90-day investment horizon iShares Short Treasury is expected to generate 0.37 times more return on investment than First Trust. However, iShares Short Treasury is 2.68 times less risky than First Trust. It trades about 1.37 of its potential returns per unit of risk. First Trust Enhanced is currently generating about 0.5 per unit of risk. If you would invest  10,957  in iShares Short Treasury on September 23, 2024 and sell it today you would earn a total of  41.00  from holding iShares Short Treasury or generate 0.37% 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 Treasury  vs.  First Trust Enhanced

iShares Short Treasury

Risk-Adjusted Performance

88 of 100

Market Crasher

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Short Treasury are ranked lower than 88 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable technical indicators, IShares Short is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

First Trust Enhanced

Risk-Adjusted Performance

33 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Enhanced are ranked lower than 33 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The latest stock price disarray, 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 Treasury and First Trust Enhanced 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.