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 Water and iShares Global Timber, 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

0.75

Correlation Coefficient

First Trust  IShares Global

Poor diversification

The 3 months correlation between First and IShares is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Water and iShares Global Timber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Timber 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 Water 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 Timber 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 Water is expected to generate 1.0 times more return on investment than IShares Global. However, First Trust Water is 1.0 times less risky than IShares Global. It trades about 0.06 of its potential returns per unit of risk. iShares Global Timber is currently generating about 0.06 per unit of risk. If you would invest  9,860  in First Trust Water on March 1, 2024 and sell it today you would earn a total of  308.00  from holding First Trust Water or generate 3.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

First Trust Water  vs.  iShares Global Timber

First Trust Water

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Water are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable forward indicators, First Trust is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares Global Timber

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global Timber are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, IShares Global is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

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 Water and iShares Global Timber 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.