Correlation Between First Trust and IShares Telecommunicatio

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

By analyzing existing cross correlation between First Trust Cloud and iShares Telecommunications ETF, you can compare the effects of market volatilities on First Trust and IShares Telecommunicatio 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 Telecommunicatio. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares Telecommunicatio.

Diversification Opportunities for First Trust and IShares Telecommunicatio

0.96

Correlation Coefficient

First Trust  IShares Telecommunicatio

Almost no diversification

The 3 months correlation between First and IShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Cloud and iShares Telecommunications ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IShares Telecommunicatio 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 Cloud are associated (or correlated) with IShares Telecommunicatio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IShares Telecommunicatio has no effect on the direction of First Trust i.e., First Trust and IShares Telecommunicatio go up and down completely randomly.

Pair Corralation between First Trust and IShares Telecommunicatio

Given the investment horizon of 90 days First Trust Cloud is expected to generate 1.76 times more return on investment than IShares Telecommunicatio. However, First Trust is 1.76 times more volatile than iShares Telecommunications ETF. It trades about 0.22 of its potential returns per unit of risk. iShares Telecommunications ETF is currently generating about 0.15 per unit of risk. If you would invest  10,561  in First Trust Cloud on September 27, 2024 and sell it today you would earn a total of  1,817  from holding First Trust Cloud or generate 17.2% return on investment over 90 days.

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

First Trust Cloud  vs.  iShares Telecommunications ETF

First Trust Cloud

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Cloud are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, First Trust showed solid returns over the last few months and may actually be approaching a breakup point.

IShares Telecommunicatio

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Telecommunications ETF are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, IShares Telecommunicatio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Trust and IShares Telecommunicatio

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

The idea behind First Trust Cloud and iShares Telecommunications ETF 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.

Check out your portfolio center.

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.