Correlation Between First Trust and IShares Emerging
Can any of the company-specific risk be diversified away by investing in both First Trust and IShares Emerging 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 Emerging 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 Emerging Markets, you can compare the effects of market volatilities on First Trust and IShares Emerging 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 Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares Emerging.
Diversification Opportunities for First Trust and IShares Emerging
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and IShares is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Dow and iShares Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Emerging Markets 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 Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Emerging Markets has no effect on the direction of First Trust i.e., First Trust and IShares Emerging go up and down completely randomly.
Pair Corralation between First Trust and IShares Emerging
Considering the 90-day investment horizon First Trust Dow is expected to generate 0.58 times more return on investment than IShares Emerging. However, First Trust Dow is 1.72 times less risky than IShares Emerging. It trades about -0.03 of its potential returns per unit of risk. iShares Emerging Markets is currently generating about -0.16 per unit of risk. If you would invest 2,397 in First Trust Dow on September 3, 2024 and sell it today you would lose (18.00) from holding First Trust Dow or give up 0.75% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Dow vs. iShares Emerging Markets
Performance |
| Timeline |
| First Trust Dow |
| iShares Emerging Markets |
First Trust and IShares Emerging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and IShares Emerging
The main advantage of trading using opposite First Trust and IShares Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IShares Emerging 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 Emerging will offset losses from the drop in IShares Emerging's long position.| First Trust vs. First Trust STOXX | First Trust vs. First Trust Morningstar | First Trust vs. SPDR SP International | First Trust vs. WisdomTree International High |
| IShares Emerging vs. SCOR PK | IShares Emerging vs. HUMANA INC | IShares Emerging vs. Aquagold International | IShares Emerging vs. Barloworld Ltd ADR |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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