Correlation Between First Trust and IShares Edge
Can any of the company-specific risk be diversified away by investing in both First Trust and IShares Edge 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 Edge into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Indxx and iShares Edge MSCI, you can compare the effects of market volatilities on First Trust and IShares Edge 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 Edge. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares Edge.
Diversification Opportunities for First Trust and IShares Edge
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between First and IShares is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Indxx and iShares Edge MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Edge MSCI 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 Indxx are associated (or correlated) with IShares Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Edge MSCI has no effect on the direction of First Trust i.e., First Trust and IShares Edge go up and down completely randomly.
Pair Corralation between First Trust and IShares Edge
Assuming the 90 days trading horizon First Trust is expected to generate 1.15 times less return on investment than IShares Edge. In addition to that, First Trust is 2.28 times more volatile than iShares Edge MSCI. It trades about 0.14 of its total potential returns per unit of risk. iShares Edge MSCI is currently generating about 0.36 per unit of volatility. If you would invest 3,660 in iShares Edge MSCI on November 3, 2024 and sell it today you would earn a total of 152.00 from holding iShares Edge MSCI or generate 4.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
First Trust Indxx vs. iShares Edge MSCI
Performance |
| Timeline |
| First Trust Indxx |
| iShares Edge MSCI |
First Trust and IShares Edge Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and IShares Edge
The main advantage of trading using opposite First Trust and IShares Edge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IShares Edge 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 Edge will offset losses from the drop in IShares Edge's long position.| First Trust vs. First Trust Indxx | First Trust vs. First Trust Senior | First Trust vs. First Trust AlphaDEX | First Trust vs. First Trust Indxx |
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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