Correlation Between IPath Bloomberg and First Trust

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

By analyzing existing cross correlation between iPath Bloomberg Commodity and First Trust Alternative, you can compare the effects of market volatilities on IPath Bloomberg 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 IPath Bloomberg with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of IPath Bloomberg and First Trust.

Diversification Opportunities for IPath Bloomberg and First Trust

0.42

Correlation Coefficient

IPath Bloomberg  First Trust

Very weak diversification

The 3 months correlation between IPath and First is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding iPath Bloomberg Commodity and First Trust Alternative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Alternative and IPath Bloomberg 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 iPath Bloomberg Commodity 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 Alternative has no effect on the direction of IPath Bloomberg i.e., IPath Bloomberg and First Trust go up and down completely randomly.

Pair Corralation between IPath Bloomberg and First Trust

Considering the 90-day investment horizon iPath Bloomberg Commodity is expected to generate 1.14 times more return on investment than First Trust. However, IPath Bloomberg is 1.14 times more volatile than First Trust Alternative. It trades about 0.35 of its potential returns per unit of risk. First Trust Alternative is currently generating about 0.01 per unit of risk. If you would invest  2,953  in iPath Bloomberg Commodity on February 23, 2024 and sell it today you would earn a total of  460.00  from holding iPath Bloomberg Commodity or generate 15.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

iPath Bloomberg Commodity  vs.  First Trust Alternative

iPath Bloomberg Commodity

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in iPath Bloomberg Commodity are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward-looking indicators, IPath Bloomberg reported solid returns over the last few months and may actually be approaching a breakup point.

First Trust Alternative

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Alternative has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, First Trust is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IPath Bloomberg and First Trust

The main advantage of trading using opposite IPath Bloomberg and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IPath Bloomberg 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 iPath Bloomberg Commodity and First Trust Alternative 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.