Correlation Between IShares Industrials and First Trust

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

Diversification Opportunities for IShares Industrials and First Trust

0.62

Correlation Coefficient

IShares Industrials  First Trust

Poor diversification

The 3 months correlation between IShares and First is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding iShares Industrials ETF and First Trust Indxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Indxx and IShares Industrials 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 Industrials 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 Indxx has no effect on the direction of IShares Industrials i.e., IShares Industrials and First Trust go up and down completely randomly.

Pair Corralation between IShares Industrials and First Trust

Considering the 90-day investment horizon IShares Industrials is expected to generate 1.34 times less return on investment than First Trust. But when comparing it to its historical volatility, iShares Industrials ETF is 1.07 times less risky than First Trust. It trades about 0.05 of its potential returns per unit of risk. First Trust Indxx is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,463  in First Trust Indxx on January 25, 2025 and sell it today you would earn a total of  639.00  from holding First Trust Indxx or generate 25.94% return on investment over 90 days.

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

iShares Industrials ETF  vs.  First Trust Indxx

iShares Industrials ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Industrials ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Etf's basic indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the ETF firm stakeholders.

First Trust Indxx

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Indxx has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, First Trust is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with IShares Industrials and First Trust

The main advantage of trading using opposite IShares Industrials and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Industrials 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 Industrials ETF and First Trust Indxx 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.