Correlation Between First Trust and IShares Financial

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

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

Diversification Opportunities for First Trust and IShares Financial

0.97

Correlation Coefficient

First Trust  IShares Financial

Almost no diversification

The 3 months correlation between First and IShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Financials and iShares Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Financial 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 Financials are associated (or correlated) with IShares Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Financial has no effect on the direction of First Trust i.e., First Trust and IShares Financial go up and down completely randomly.

Pair Corralation between First Trust and IShares Financial

Considering the 90-day investment horizon First Trust Financials is expected to generate 1.16 times more return on investment than IShares Financial. However, First Trust is 1.16 times more volatile than iShares Financial Services. It trades about 0.13 of its potential returns per unit of risk. iShares Financial Services is currently generating about 0.12 per unit of risk. If you would invest  4,288  in First Trust Financials on February 4, 2024 and sell it today you would earn a total of  313.00  from holding First Trust Financials or generate 7.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

First Trust Financials  vs.  iShares Financial Services

First Trust Financials

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Financials are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, First Trust may actually be approaching a critical reversion point that can send shares even higher in June 2024.

iShares Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Financial Services are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IShares Financial is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with First Trust and IShares Financial

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

The idea behind First Trust Financials and iShares Financial Services 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.