Correlation Between IShares Regional and First Trust

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

Diversification Opportunities for IShares Regional and First Trust

0.89

Correlation Coefficient

IShares Regional  First Trust

Very poor diversification

The 3 months correlation between IShares and First is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding iShares Regional Banks and First Trust Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Nasdaq and IShares Regional 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 Regional Banks 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 Nasdaq has no effect on the direction of IShares Regional i.e., IShares Regional and First Trust go up and down completely randomly.

Pair Corralation between IShares Regional and First Trust

Considering the 90-day investment horizon iShares Regional Banks is expected to generate 1.14 times more return on investment than First Trust. However, IShares Regional is 1.14 times more volatile than First Trust Nasdaq. It trades about 0.01 of its potential returns per unit of risk. First Trust Nasdaq is currently generating about 0.0 per unit of risk. If you would invest  4,179  in iShares Regional Banks on January 24, 2024 and sell it today you would earn a total of  10.00  from holding iShares Regional Banks or generate 0.24% return on investment over 90 days.

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

iShares Regional Banks  vs.  First Trust Nasdaq

iShares Regional Banks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Regional Banks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares Regional is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

First Trust Nasdaq

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Nasdaq are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, First Trust is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Regional and First Trust

The main advantage of trading using opposite IShares Regional and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Regional 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 Regional Banks and First Trust Nasdaq 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.

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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.