Correlation Between First Trust and IShares MSCI
Can any of the company-specific risk be diversified away by investing in both First Trust and IShares MSCI 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 MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Germany and iShares MSCI Hong, you can compare the effects of market volatilities on First Trust and IShares MSCI 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 MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares MSCI.
Diversification Opportunities for First Trust and IShares MSCI
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and IShares is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Germany and iShares MSCI Hong in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Hong 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 Germany are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI Hong has no effect on the direction of First Trust i.e., First Trust and IShares MSCI go up and down completely randomly.
Pair Corralation between First Trust and IShares MSCI
Considering the 90-day investment horizon First Trust is expected to generate 1.65 times less return on investment than IShares MSCI. But when comparing it to its historical volatility, First Trust Germany is 1.37 times less risky than IShares MSCI. It trades about 0.03 of its potential returns per unit of risk. iShares MSCI Hong is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,580 in iShares MSCI Hong on September 4, 2024 and sell it today you would earn a total of 158.00 from holding iShares MSCI Hong or generate 10.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.79% |
| Values | Daily Returns |
First Trust Germany vs. iShares MSCI Hong
Performance |
| Timeline |
| First Trust Germany |
| iShares MSCI Hong |
First Trust and IShares MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and IShares MSCI
The main advantage of trading using opposite First Trust and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IShares MSCI 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 MSCI will offset losses from the drop in IShares MSCI's long position.The idea behind First Trust Germany and iShares MSCI Hong pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| IShares MSCI vs. Franklin FTSE South | IShares MSCI vs. Franklin FTSE Japan | IShares MSCI vs. Franklin FTSE India | IShares MSCI vs. Franklin FTSE Brazil |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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