Correlation Between First Trust and IShares Mortgage
Can any of the company-specific risk be diversified away by investing in both First Trust and IShares Mortgage 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 Mortgage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust SP and iShares Mortgage Real, you can compare the effects of market volatilities on First Trust and IShares Mortgage 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 Mortgage. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares Mortgage.
Diversification Opportunities for First Trust and IShares Mortgage
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and IShares is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding First Trust SP and iShares Mortgage Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Mortgage Real 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 SP are associated (or correlated) with IShares Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Mortgage Real has no effect on the direction of First Trust i.e., First Trust and IShares Mortgage go up and down completely randomly.
Pair Corralation between First Trust and IShares Mortgage
Considering the 90-day investment horizon First Trust SP is expected to generate 0.95 times more return on investment than IShares Mortgage. However, First Trust SP is 1.06 times less risky than IShares Mortgage. It trades about 0.03 of its potential returns per unit of risk. iShares Mortgage Real is currently generating about 0.01 per unit of risk. If you would invest 2,644 in First Trust SP on October 22, 2024 and sell it today you would earn a total of 93.00 from holding First Trust SP or generate 3.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust SP vs. iShares Mortgage Real
Performance |
| Timeline |
| First Trust SP |
| iShares Mortgage Real |
First Trust and IShares Mortgage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and IShares Mortgage
The main advantage of trading using opposite First Trust and IShares Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IShares Mortgage 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 Mortgage will offset losses from the drop in IShares Mortgage's long position.| First Trust vs. Invesco Active Real | First Trust vs. First Trust Consumer | First Trust vs. First Trust Utilities | First Trust vs. iShares Residential and |
| IShares Mortgage vs. VanEck Mortgage REIT | IShares Mortgage vs. iShares Residential and | IShares Mortgage vs. iShares Preferred and | IShares Mortgage vs. Global X SuperDividend |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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