Correlation Between First Trust and IShares IBoxx
Can any of the company-specific risk be diversified away by investing in both First Trust and IShares IBoxx 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 IBoxx into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Senior and iShares iBoxx High, you can compare the effects of market volatilities on First Trust and IShares IBoxx 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 IBoxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares IBoxx.
Diversification Opportunities for First Trust and IShares IBoxx
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and IShares is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Senior and iShares iBoxx High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares iBoxx High 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 Senior are associated (or correlated) with IShares IBoxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares iBoxx High has no effect on the direction of First Trust i.e., First Trust and IShares IBoxx go up and down completely randomly.
Pair Corralation between First Trust and IShares IBoxx
Given the investment horizon of 90 days First Trust is expected to generate 1.23 times less return on investment than IShares IBoxx. But when comparing it to its historical volatility, First Trust Senior is 2.13 times less risky than IShares IBoxx. It trades about 0.23 of its potential returns per unit of risk. iShares iBoxx High is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 7,319 in iShares iBoxx High on August 25, 2024 and sell it today you would earn a total of 630.00 from holding iShares iBoxx High or generate 8.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Senior vs. iShares iBoxx High
Performance |
| Timeline |
| First Trust Senior |
| iShares iBoxx High |
First Trust and IShares IBoxx Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and IShares IBoxx
The main advantage of trading using opposite First Trust and IShares IBoxx positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IShares IBoxx 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 IBoxx will offset losses from the drop in IShares IBoxx's long position.| First Trust vs. First Trust Tactical | First Trust vs. First Trust Low | First Trust vs. First Trust Enhanced | First Trust vs. First Trust Managed |
| IShares IBoxx vs. First Trust Senior | IShares IBoxx vs. First Trust Low | IShares IBoxx vs. First Trust Enhanced | IShares IBoxx vs. First Trust TCW |
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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