Correlation Between IShares Insurance and First Trust

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

Diversification Opportunities for IShares Insurance and First Trust

0.32

Correlation Coefficient

IShares Insurance  First Trust

Weak diversification

The 3 months correlation between IShares and First is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding iShares Insurance ETF and First Trust NYSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NYSE and IShares Insurance 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 Insurance ETF 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 NYSE has no effect on the direction of IShares Insurance i.e., IShares Insurance and First Trust go up and down completely randomly.

Pair Corralation between IShares Insurance and First Trust

Considering the 90-day investment horizon iShares Insurance ETF is expected to generate 0.86 times more return on investment than First Trust. However, iShares Insurance ETF is 1.17 times less risky than First Trust. It trades about 0.06 of its potential returns per unit of risk. First Trust NYSE is currently generating about 0.02 per unit of risk. If you would invest  8,217  in iShares Insurance ETF on February 4, 2024 and sell it today you would earn a total of  3,071  from holding iShares Insurance ETF or generate 37.37% return on investment over 90 days.

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

iShares Insurance ETF  vs.  First Trust NYSE

iShares Insurance ETF

Risk-Adjusted Performance

10 of 100

OK

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

First Trust NYSE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust NYSE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, First Trust is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares Insurance and First Trust

The main advantage of trading using opposite IShares Insurance and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Insurance 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 Insurance ETF and First Trust NYSE 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.