Correlation Between First Trust and IShares Yield
Can any of the company-specific risk be diversified away by investing in both First Trust and IShares Yield 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 Yield into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust TCW and iShares Yield Optimized, you can compare the effects of market volatilities on First Trust and IShares Yield 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 Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares Yield.
Diversification Opportunities for First Trust and IShares Yield
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and IShares is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding First Trust TCW and iShares Yield Optimized in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Yield Optimized 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 TCW are associated (or correlated) with IShares Yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Yield Optimized has no effect on the direction of First Trust i.e., First Trust and IShares Yield go up and down completely randomly.
Pair Corralation between First Trust and IShares Yield
Given the investment horizon of 90 days First Trust is expected to generate 1.19 times less return on investment than IShares Yield. In addition to that, First Trust is 1.65 times more volatile than iShares Yield Optimized. It trades about 0.07 of its total potential returns per unit of risk. iShares Yield Optimized is currently generating about 0.13 per unit of volatility. If you would invest 2,240 in iShares Yield Optimized on August 28, 2024 and sell it today you would earn a total of 17.00 from holding iShares Yield Optimized or generate 0.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust TCW vs. iShares Yield Optimized
Performance |
| Timeline |
| First Trust TCW |
| iShares Yield Optimized |
First Trust and IShares Yield Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and IShares Yield
The main advantage of trading using opposite First Trust and IShares Yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IShares Yield 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 Yield will offset losses from the drop in IShares Yield's long position.| First Trust vs. Capital Group Short | First Trust vs. Capital Group Municipal | First Trust vs. Capital Group Global | First Trust vs. Capital Group Dividend |
| IShares Yield vs. Capital Group Short | IShares Yield vs. Capital Group Municipal | IShares Yield vs. Capital Group Global | IShares Yield vs. Capital Group Dividend |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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