Correlation Between First Trust and IShares Global

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

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

Diversification Opportunities for First Trust and IShares Global

0.76

Correlation Coefficient

First Trust  IShares Global

Poor diversification

The 3 months correlation between First and IShares is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Materials and iShares Global Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Materials 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 Materials are associated (or correlated) with IShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global Materials has no effect on the direction of First Trust i.e., First Trust and IShares Global go up and down completely randomly.

Pair Corralation between First Trust and IShares Global

Considering the 90-day investment horizon First Trust Materials is expected to under-perform the IShares Global. In addition to that, First Trust is 1.22 times more volatile than iShares Global Materials. It trades about 0.0 of its total potential returns per unit of risk. iShares Global Materials is currently generating about 0.02 per unit of volatility. If you would invest  8,197  in iShares Global Materials on September 12, 2024 and sell it today you would earn a total of  319.00  from holding iShares Global Materials or generate 3.89% return on investment over 90 days.

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

First Trust Materials  vs.  iShares Global Materials

First Trust Materials

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Materials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, First Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

iShares Global Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Global Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, IShares Global is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Trust and IShares Global

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

The idea behind First Trust Materials and iShares Global Materials 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.