Correlation Between IShares ESG and First Trust

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

Diversification Opportunities for IShares ESG and First Trust

-0.36

Correlation Coefficient

IShares ESG  First Trust

Very good diversification

The 3 months correlation between IShares and First is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG USD and First Trust Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Small and IShares ESG 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 ESG USD 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 Small has no effect on the direction of IShares ESG i.e., IShares ESG and First Trust go up and down completely randomly.

Pair Corralation between IShares ESG and First Trust

Given the investment horizon of 90 days iShares ESG USD is expected to under-perform the First Trust. But the etf apears to be less risky and, when comparing its historical volatility, iShares ESG USD is 3.52 times less risky than First Trust. The etf trades about -0.11 of its potential returns per unit of risk. The First Trust Small is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  9,743  in First Trust Small on September 15, 2024 and sell it today you would earn a total of  929.00  from holding First Trust Small or generate 9.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

iShares ESG USD  vs.  First Trust Small

iShares ESG USD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares ESG USD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares ESG is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

First Trust Small

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Small are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares ESG and First Trust

The main advantage of trading using opposite IShares ESG and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares ESG 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 ESG USD and First Trust Small 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.