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 RiverFront and iShares MSCI EAFE, 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
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and IShares is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding First Trust RiverFront and iShares MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI EAFE 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 RiverFront 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 EAFE 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 RiverFront is expected to generate 0.86 times more return on investment than IShares MSCI. However, First Trust RiverFront is 1.16 times less risky than IShares MSCI. It trades about -0.07 of its potential returns per unit of risk. iShares MSCI EAFE is currently generating about -0.2 per unit of risk. If you would invest 6,376 in First Trust RiverFront on January 25, 2024 and sell it today you would lose (70.00) from holding First Trust RiverFront or give up 1.1% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust RiverFront vs. iShares MSCI EAFE
Performance |
| Timeline |
| First Trust RiverFront |
| iShares MSCI EAFE |
First Trust and IShares MSCI Volatility Contrast
Predicted Return Density |
| Returns |
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.| First Trust vs. iShares ESG Aware | First Trust vs. iShares ESG Aware | First Trust vs. iShares ESG Aware | First Trust vs. iShares MSCI USA |
| IShares MSCI vs. Invesco DWA Emerging | IShares MSCI vs. Invesco DWA Momentum | IShares MSCI vs. Invesco DWA SmallCap | IShares MSCI vs. Invesco FTSE RAFI |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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