Correlation Between IShares Aerospace and First Trust

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

Diversification Opportunities for IShares Aerospace and First Trust

0.97

Correlation Coefficient

IShares Aerospace  First Trust

Almost no diversification

The 3 months correlation between IShares and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares Aerospace Defense and First Trust RBA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust RBA and IShares Aerospace 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 Aerospace Defense 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 RBA has no effect on the direction of IShares Aerospace i.e., IShares Aerospace and First Trust go up and down completely randomly.

Pair Corralation between IShares Aerospace and First Trust

Considering the 90-day investment horizon iShares Aerospace Defense is expected to generate 0.47 times more return on investment than First Trust. However, iShares Aerospace Defense is 2.13 times less risky than First Trust. It trades about 0.02 of its potential returns per unit of risk. First Trust RBA is currently generating about -0.07 per unit of risk. If you would invest  13,089  in iShares Aerospace Defense on February 1, 2024 and sell it today you would earn a total of  24.00  from holding iShares Aerospace Defense or generate 0.18% return on investment over 90 days.

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

iShares Aerospace Defense  vs.  First Trust RBA

iShares Aerospace Defense

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Aerospace Defense are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares Aerospace is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Trust RBA

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust RBA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, First Trust reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Aerospace and First Trust

The main advantage of trading using opposite IShares Aerospace and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Aerospace 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 Aerospace Defense and First Trust RBA 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.