Correlation Between IShares ESG and First Trust
Can any of the company-specific risk be diversified away by investing in both IShares ESG 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 ESG 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 ESG Aware and First Trust Bloomberg, you can compare the effects of market volatilities on IShares ESG 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 ESG with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and First Trust.
Diversification Opportunities for IShares ESG and First Trust
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between IShares and First is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aware and First Trust Bloomberg in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Bloomberg and IShares ESG 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 ESG Aware 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 Bloomberg has no effect on the direction of IShares ESG i.e., IShares ESG and First Trust go up and down completely randomly.
Pair Corralation between IShares ESG and First Trust
Given the investment horizon of 90 days IShares ESG is expected to generate 1.57 times less return on investment than First Trust. But when comparing it to its historical volatility, iShares ESG Aware is 1.37 times less risky than First Trust. It trades about 0.11 of its potential returns per unit of risk. First Trust Bloomberg is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 1,983 in First Trust Bloomberg on August 30, 2024 and sell it today you would earn a total of 445.00 from holding First Trust Bloomberg or generate 22.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 29.49% |
| Values | Daily Returns |
iShares ESG Aware vs. First Trust Bloomberg
Performance |
| Timeline |
| iShares ESG Aware |
| First Trust Bloomberg |
IShares ESG and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares ESG and First Trust
The main advantage of trading using opposite IShares ESG and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares ESG 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 ESG vs. JPMorgan BetaBuilders International | IShares ESG vs. JPMorgan Core Plus | IShares ESG vs. JPMorgan BetaBuilders Canada | IShares ESG vs. JPMorgan Emerging Markets |
| First Trust vs. Freedom Day Dividend | First Trust vs. Franklin Templeton ETF | First Trust vs. iShares MSCI China | First Trust vs. Tidal Trust II |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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