Correlation Between First Trust and IShares BB
Can any of the company-specific risk be diversified away by investing in both First Trust and IShares BB 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 BB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Trust Enhanced and iShares BB Rated, you can compare the effects of market volatilities on First Trust and IShares BB 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 BB. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Trust and IShares BB.
Diversification Opportunities for First Trust and IShares BB
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between First and IShares is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding First Trust Enhanced and iShares BB Rated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares BB Rated 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 Enhanced are associated (or correlated) with IShares BB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares BB Rated has no effect on the direction of First Trust i.e., First Trust and IShares BB go up and down completely randomly.
Pair Corralation between First Trust and IShares BB
Given the investment horizon of 90 days First Trust is expected to generate 1.65 times less return on investment than IShares BB. But when comparing it to its historical volatility, First Trust Enhanced is 11.41 times less risky than IShares BB. It trades about 0.6 of its potential returns per unit of risk. iShares BB Rated is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 3,969 in iShares BB Rated on August 27, 2024 and sell it today you would earn a total of 691.00 from holding iShares BB Rated or generate 17.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Trust Enhanced vs. iShares BB Rated
Performance |
| Timeline |
| First Trust Enhanced |
| iShares BB Rated |
First Trust and IShares BB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Trust and IShares BB
The main advantage of trading using opposite First Trust and IShares BB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Trust position performs unexpectedly, IShares BB 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 BB will offset losses from the drop in IShares BB's long position.| First Trust vs. First Trust Low | First Trust vs. First Trust Senior | First Trust vs. First Trust TCW | First Trust vs. First Trust Tactical |
| IShares BB vs. First Trust Senior | IShares BB vs. First Trust Low | IShares BB vs. First Trust Enhanced | IShares BB 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 Global Correlations module to find global opportunities by holding instruments from different markets.
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