Correlation Between First Trust and IShares Technology
Can any of the company-specific risk be diversified away by investing in both First Trust and IShares Technology 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 Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Dow and iShares Technology ETF, you can compare the effects of market volatilities on First Trust and IShares Technology 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 Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares Technology.
Diversification Opportunities for First Trust and IShares Technology
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and IShares is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dow and iShares Technology ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Technology ETF 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 Dow are associated (or correlated) with IShares Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Technology ETF has no effect on the direction of First Trust i.e., First Trust and IShares Technology go up and down completely randomly.
Pair Corralation between First Trust and IShares Technology
Considering the 90-day investment horizon First Trust Dow is expected to generate 0.81 times more return on investment than IShares Technology. However, First Trust Dow is 1.24 times less risky than IShares Technology. It trades about 0.24 of its potential returns per unit of risk. iShares Technology ETF is currently generating about 0.08 per unit of risk. If you would invest 20,301 in First Trust Dow on August 23, 2024 and sell it today you would earn a total of 3,543 from holding First Trust Dow or generate 17.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Dow vs. iShares Technology ETF
Performance |
| Timeline |
| First Trust Dow |
| iShares Technology ETF |
First Trust and IShares Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and IShares Technology
The main advantage of trading using opposite First Trust and IShares Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IShares Technology 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 Technology will offset losses from the drop in IShares Technology's long position.| First Trust vs. First Trust Cloud | First Trust vs. iShares Expanded Tech Software | First Trust vs. Invesco NASDAQ Internet | First Trust vs. First Trust NASDAQ 100 Technology |
| IShares Technology vs. iShares Healthcare ETF | IShares Technology vs. iShares Financials ETF | IShares Technology vs. iShares Telecommunications ETF | IShares Technology vs. iShares Industrials ETF |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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