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 Dow and iShares Global Tech, 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

0.8

Correlation Coefficient

First Trust  IShares Global

Very poor diversification

The 3 months correlation between First and IShares is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dow and iShares Global Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Tech 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 Dow 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 Tech 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 is expected to generate 1.01 times less return on investment than IShares Global. But when comparing it to its historical volatility, First Trust Dow is 1.04 times less risky than IShares Global. It trades about 0.03 of its potential returns per unit of risk. iShares Global Tech is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  7,168  in iShares Global Tech on February 4, 2024 and sell it today you would earn a total of  118.00  from holding iShares Global Tech or generate 1.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.92%
Values	Daily Returns

First Trust Dow  vs.  iShares Global Tech

First Trust Dow

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Dow are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, First Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares Global Tech

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global Tech are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Global is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

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 Dow and iShares Global Tech 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.