Correlation Between First Trust and IShares MSCI

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

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

Diversification Opportunities for First Trust and IShares MSCI

0.88

Correlation Coefficient

First Trust  IShares MSCI

Very poor diversification

The 3 months correlation between First and IShares is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Nasdaq and iShares MSCI Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Europe 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 Nasdaq are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI Europe has no effect on the direction of First Trust i.e., First Trust and IShares MSCI go up and down completely randomly.

Pair Corralation between First Trust and IShares MSCI

Given the investment horizon of 90 days First Trust Nasdaq is expected to generate 1.4 times more return on investment than IShares MSCI. However, First Trust is 1.4 times more volatile than iShares MSCI Europe. It trades about 0.13 of its potential returns per unit of risk. iShares MSCI Europe is currently generating about 0.11 per unit of risk. If you would invest  2,980  in First Trust Nasdaq on May 5, 2025 and sell it today you would earn a total of  308.00  from holding First Trust Nasdaq or generate 10.34% return on investment over 90 days.

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

First Trust Nasdaq  vs.  iShares MSCI Europe

First Trust Nasdaq

Risk-Adjusted Performance

OK

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

iShares MSCI Europe

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Europe are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with First Trust and IShares MSCI

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

The idea behind First Trust Nasdaq and iShares MSCI Europe 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.