Correlation Between IShares Russell and First Trust

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

Diversification Opportunities for IShares Russell and First Trust

0.99

Correlation Coefficient

IShares Russell  First Trust

No risk reduction

The 3 months correlation between IShares and First is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell Mid Cap and First Trust Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Equity and IShares Russell 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 Russell Mid Cap 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 Equity has no effect on the direction of IShares Russell i.e., IShares Russell and First Trust go up and down completely randomly.

Pair Corralation between IShares Russell and First Trust

Considering the 90-day investment horizon IShares Russell is expected to generate 1.41 times less return on investment than First Trust. But when comparing it to its historical volatility, iShares Russell Mid Cap is 1.23 times less risky than First Trust. It trades about 0.22 of its potential returns per unit of risk. First Trust Equity is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  12,544  in First Trust Equity on May 2, 2025 and sell it today you would earn a total of  2,539  from holding First Trust Equity or generate 20.24% return on investment over 90 days.

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

iShares Russell Mid Cap  vs.  First Trust Equity

iShares Russell Mid

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell Mid Cap are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, IShares Russell reported solid returns over the last few months and may actually be approaching a breakup point.

First Trust Equity

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Equity are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, First Trust showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Russell and First Trust

The main advantage of trading using opposite IShares Russell and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Russell 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 Russell Mid Cap and First Trust Equity 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.