Correlation Between IShares MSCI and First Trust
Can any of the company-specific risk be diversified away by investing in both IShares MSCI 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 MSCI 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 MSCI ACWI and First Trust Asia, you can compare the effects of market volatilities on IShares MSCI 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 MSCI with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and First Trust.
Diversification Opportunities for IShares MSCI and First Trust
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between IShares and First is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI ACWI and First Trust Asia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Asia and IShares MSCI 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 MSCI ACWI 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 Asia has no effect on the direction of IShares MSCI i.e., IShares MSCI and First Trust go up and down completely randomly.
Pair Corralation between IShares MSCI and First Trust
Given the investment horizon of 90 days iShares MSCI ACWI is expected to generate 0.58 times more return on investment than First Trust. However, iShares MSCI ACWI is 1.72 times less risky than First Trust. It trades about 0.13 of its potential returns per unit of risk. First Trust Asia is currently generating about 0.07 per unit of risk. If you would invest 9,665 in iShares MSCI ACWI on September 2, 2024 and sell it today you would earn a total of 2,512 from holding iShares MSCI ACWI or generate 25.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.79% |
| Values | Daily Returns |
iShares MSCI ACWI vs. First Trust Asia
Performance |
| Timeline |
| iShares MSCI ACWI |
| First Trust Asia |
IShares MSCI and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares MSCI and First Trust
The main advantage of trading using opposite IShares MSCI and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI 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.| IShares MSCI vs. iShares MSCI ACWI | IShares MSCI vs. iShares MSCI All | IShares MSCI vs. iShares MSCI EAFE | IShares MSCI vs. iShares JP Morgan |
| First Trust vs. First Trust Japan | First Trust vs. First Trust Latin | First Trust vs. First Trust United | First Trust vs. First Trust Germany |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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