Correlation Between First Trust and IShares Semiconductor
Can any of the company-specific risk be diversified away by investing in both First Trust and IShares Semiconductor 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 Semiconductor 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 Semiconductor ETF, you can compare the effects of market volatilities on First Trust and IShares Semiconductor 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 Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares Semiconductor.
Diversification Opportunities for First Trust and IShares Semiconductor
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between First and IShares is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dow and iShares Semiconductor ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Semiconductor 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 Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Semiconductor ETF has no effect on the direction of First Trust i.e., First Trust and IShares Semiconductor go up and down completely randomly.
Pair Corralation between First Trust and IShares Semiconductor
Considering the 90-day investment horizon First Trust is expected to generate 1.01 times less return on investment than IShares Semiconductor. But when comparing it to its historical volatility, First Trust Dow is 1.47 times less risky than IShares Semiconductor. It trades about 0.1 of its potential returns per unit of risk. iShares Semiconductor ETF is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 12,515 in iShares Semiconductor ETF on September 4, 2024 and sell it today you would earn a total of 9,591 from holding iShares Semiconductor ETF or generate 76.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Dow vs. iShares Semiconductor ETF
Performance |
| Timeline |
| First Trust Dow |
| iShares Semiconductor ETF |
First Trust and IShares Semiconductor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and IShares Semiconductor
The main advantage of trading using opposite First Trust and IShares Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IShares Semiconductor 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 Semiconductor will offset losses from the drop in IShares Semiconductor'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 |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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